Interest Rate Hike: Federal Reserve Raises Rates by 75 Basis Points
Market Impact
The Federal Reserve's decision to raise interest rates by 75 basis points, the largest increase since 1994, has sent shockwaves through emerging markets. The move, aimed at curbing inflation in the United States, is expected to have significant implications for developing economies.
Currency Depreciation
Emerging market currencies have been hit hard by the rate hike, with many depreciating against the US dollar. This is because higher US interest rates make it more attractive for investors to hold dollars, leading to a sell-off of emerging market assets.
Capital Outflows
The rate hike is also expected to trigger capital outflows from emerging markets. As investors seek higher returns in the United States, they may withdraw funds from emerging market investments, leading to a decline in foreign investment.
Reduced Economic Growth
Higher interest rates can slow economic growth in emerging markets. This is because businesses may delay investments due to higher borrowing costs, and consumers may reduce spending due to reduced disposable income.
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