Interview: U.S. aggressive rate hikes spell trouble for developing countries, says economist-Xinhua

Interview: U.S. aggressive rate hikes spell trouble for developing countries, says economist

Source: Xinhua| 2022-10-06 18:40:31|Editor:

BANGKOK, Oct. 6 (Xinhua) -- The U.S. Fed's aggressive interest rate hikes have imperiled developing countries and undermined their financial and economic stability, an economist said recently.

The Fed raised the interest rate by 75-basis-point three times so far this year. The economic shock waves from U.S. policies to combat inflation hit developing countries and exacerbated their already challenging economic circumstances, said Kirida Bhaopichitr, research director for international economics and development policy under the Thailand Development Research Institute.

When the U.S. Fed started hiking interest rates aggressively, many developing countries or emerging market economies saw capital outflows from their countries to the United States and had to raise their rates as well, Kirida said in a recent interview with Xinhua.

As a result, commercial banks would raise lending rates in these countries, hurting small-and medium-sized enterprises and households that borrow for mortgages or automobile loans, dragging down consumption elsewhere, she said.

Capital outflows cause local currencies in developing countries to weaken against the greenback, leading to rising imported inflation and more considerable debt burdens if they borrow in U.S. dollars, further hurting their purchasing power and dampening economic growth, according to Kirida.

"It's a big worry. We've already seen many developing countries in economic problems," the economist said.

"I'm worried that there will be several developing countries that could go into an economic crisis, especially those who have a big differential between their interest rates and the U.S. interest rates and those who have low foreign exchange reserves," she said.

For many developing countries, "it's probably difficult to do anything at the moment, except seeking assistance from international organizations like the International Monetary Fund or the World Bank," Kirida said.

As developing countries already faced mounting economic distress from the large amounts of spending to fight the COVID-19 pandemic and rising fuel prices, the situation could worsen if the U.S. continues to prioritize its own economy, she added.

EXPLORE XINHUANET