Recently, the Federal Reserve announced its tenth consecutive interest rate hike, causing concern from all walks of life. Colombian financial analysts believe that a strong dollar policy will have an impact on emerging economies in Latin America, and the weak currencies of many Latin American countries will not only affect domestic consumption capacity, but also increase the risk of default on government debt repayment.
Financial analyst Julio Romero: For emerging economies in Latin American countries, including Colombia, Peru, Chile, etc., the impact of the Fed's interest rate hike has several aspects, the first is that foreign investment will retreat, they will withdraw funds to the United States, leaving emerging markets. In addition, it can be seen from the past few years that as soon as the Fed raises interest rates, emerging market currencies will depreciate.
Experts believe that with the Fed's aggressive interest rate hikes, the interest rate differential between the United States and emerging market countries usually narrows, which is likely to lead to short-term international capital flowing back to the United States from emerging market countries. In this scenario, some emerging market countries are likely to face difficulties such as falling domestic asset prices, depreciation of their currencies against the US dollar, and rising foreign currency debt pressures.
In May, the Colombian central bank had to raise the rate again to 13.25%, the 14th consecutive hike since September 2020. Faced with high import prices, volatile interest rates and uncertainty, Colombia's consumer market lacked strong momentum this year. According to data released by the Colombian automotive industry, new car sales in Colombia fell by 17.2% in March compared to the same period last year.
Gao Xue: Under the influence of a strong US dollar policy, many central banks, including Colombia, have to follow the pace of the Fed's continuous interest rate hikes and raise their own interest rates to support the exchange rate of their currencies, but this has increased the borrowing costs of the country's people and enterprises to a certain extent, thereby curbing the motivation of consumption, which will drag down the country's economic development to a certain extent in the long run.
Source: CCTV News Client