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LequteMan
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Chairman of the US Federal Reserve, Janet Yellen, yesterday announced the long awaited hike in US Fed rate. The Fed rate was raised from 0% to 0.25% with a range of 0.25% to 0.5%.
Emerging markets like Nigeria will not like the current rate hikes considering its potential impact on local currencies. The rate hikes means a stronger dollar against most of the worlds currencies including Nigeria.
According to the Financial Times, “a stronger US dollar, backed by higher US interest rates, tends to depress the values of emerging market currencies at a time when many EM economies are already weakening and their currencies have already slumped against the greenback. The Fed’s rate rise could exacerbate the EM currency turmoil, and even help precipitate a full-blown crisis.”
Nigeria currently does not have a free-floating currency and as such we may not immediately see the full impact of the hike. Nevertheless, the Naira has been under pressure at the black market hitting another all time high of N262. The CBN is also said to have over $4 billion and growing in unmet dollar demands.
Another way it could affect Nigeria negatively is through capital flights. Raising the US Fed rates by 0.25% could precipitate into capital flight out of emerging markets such as Nigeria with investors re-balancing their portfolios by holding more US investments as a hedge. It is also thought that the low interest rates had essentially blown up asset prices around the world in recent years as US investors borrow at 0% interest rates only to invest same in higher yielding emerging market assets.
Read full article on Nairametrics
Emerging markets like Nigeria will not like the current rate hikes considering its potential impact on local currencies. The rate hikes means a stronger dollar against most of the worlds currencies including Nigeria.
According to the Financial Times, “a stronger US dollar, backed by higher US interest rates, tends to depress the values of emerging market currencies at a time when many EM economies are already weakening and their currencies have already slumped against the greenback. The Fed’s rate rise could exacerbate the EM currency turmoil, and even help precipitate a full-blown crisis.”
Nigeria currently does not have a free-floating currency and as such we may not immediately see the full impact of the hike. Nevertheless, the Naira has been under pressure at the black market hitting another all time high of N262. The CBN is also said to have over $4 billion and growing in unmet dollar demands.
Another way it could affect Nigeria negatively is through capital flights. Raising the US Fed rates by 0.25% could precipitate into capital flight out of emerging markets such as Nigeria with investors re-balancing their portfolios by holding more US investments as a hedge. It is also thought that the low interest rates had essentially blown up asset prices around the world in recent years as US investors borrow at 0% interest rates only to invest same in higher yielding emerging market assets.
Read full article on Nairametrics
