U.S. interest rate hikes result in socia-economic risks in emerging markets: Egyptian economist

CAIRO, Oct. 2 (Xinhua) -- The U.S. tight monetary policy has resulted in more social and economic risks, particularly for developing countries and emerging markets, Khaled El Shafei, an economic expert and professor at the Faculty of Commerce at Cairo University, has said.

In response to recent drastic rate hikes by the U.S. Federal Reserve (Fed), central banks in advanced and developing countries "are raising rates sharply, which reached double of the Fed's hike in some nations, as they attempt to tackle the cost of living crisis," said the Egyptian economic expert in an interview with Xinhua.

The Fed raised the interest rate by 75-basis-point three times so far this year as the United States seeks to rein in inflation.

On the heels of the Russia-Ukraine conflict and the supply chain problem, food and fuel prices have skyrocketed, which put an unprecedented burden on developing countries to fight inflation and keep their dollar reserves, Shafei added.

He expected that the Fed will continue to raise interest rate, leaving more families around the world to suffer from the impact of inflation and the difficulty to meet their daily needs.

"The problem is that the U.S. dollar is the world's basic currency, and countries now suffer a shortage in the American currency and hike in its value against their local currencies," Shafei said, adding that many countries are taking measures to mitigate the impacts of the dollar's appreciation.

He stressed that the Fed's decisions have negatively impacted all countries in the world, especially developing countries as the Fed's hike often trigger capital outflows from these countries.

The international economy is a few steps away from stagflation due to the Russia-Ukraine conflict, energy supply shortage and price rises, and the U.S. Fed hikes just aggravate the situation, Shafei added.

About 22 billion U.S. dollars in investment have left Egypt since March this year, Egypt's Finance Minister Mohamed Maait said last month.

"Egypt is struggling now to make new plans to deal with such a crisis," Shafei said, referring to the Central Bank of Egypt's latest fixing of the interest rate to preserve investment in the country, whose economy is struggling to cope with the impacts of COVID-19 and other disturbances.

Raising rates means a rise in the cost of production in developing countries, forcing investors to borrow at higher cost, which in turn will further push up the prices of commodities, the expert added.