The Federal Reserve of the US last week agreed to hold interest rates steady at its June meeting. Although this was the conclusion, it is believed that several officials want the rate of interest raised to help curtail rising inflation.
According to the minutes of the June 13–14 meeting, which were made public last week, some officials backed a quarter-point rise or stated they “could have supported such a proposal,” indicating growing disagreement among the decision-makers. In the end, the Fed’s interest rate-setting committee’s 11 voting members unanimously decided to forgo another boost after 10 consecutive ones. However, they gave the impression that they might do it twice more this year, perhaps as early as this month.
According to the members’ predictions revealed last month, 12 of the 18 members of the rate-setting committee anticipate at least two additional rate increases this year. Four envisioned further growth. Only two officials predicted that rates would remain steady.
Raphael Bostic, the president of the Federal Reserve Bank of Atlanta, hinted in remarks last week that he had backed keeping rates unchanged last month.
While the US struggles to maintain its rate, we analyze how an increment affects Nigeria and Africa in general.
Capital
A stronger US Dollar and a weaker Naira can result from the United States attracting foreign investment when interest rates are high. Due to the higher cost of commodities, this may make it more expensive for Nigerian and African firms and individuals to borrow money and make it harder for importers to compete.
We are constantly trying to position ourselves so that the returns on investments in Nigeria are as appealing as possible because we rely on foreign direct investment.
Exchange rate
Inflation and economic growth may be impacted by changes in US interest rates as well as the exchange rate between the US Dollar and the Naira. In general, safer American corporate and government bonds start to look more alluring to foreign investors as U.S. interest rates climb, so they might withdraw money from low- and middle-income countries and invest it there. These changes cause the U.S. dollar to rise while the currencies of developing countries fall.
Conclusion
The effects of interest rate increases, which the Federal Reserve intends to undertake, don’t just affect US consumers. Beyond American boundaries, the effects can be felt by farmers in Kenya, small business owners in Nigeria, and families in underdeveloped nations all over the world.
Higher rates could hinder the progress of emerging economies in Africa as well as slow down the American economy and American consumers’ thirst for imports.
The central banks of emerging nations are certain to raise their interest rates to preserve their declining currencies; some have already begun this process. That might harm the economy because it slows growth, eliminates jobs, and puts pressure on corporate borrowers. Additionally, it makes debt-ridden countries spend a larger portion of their budgets on interest payments.
The Fed is anticipated to increase rates several more times this year despite the adverse ripple effect. The emerging economies of Nigeria and Africa must be ready.
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