A man exchanges money at an exchange office in Ankara, Türkiye, on Sept. 22, 2022. (Photo by Mustafa Kaya/Xinhua)
After the Fed's successive rate hikes, the demand for dollars on foreign exchange markets is getting stronger, depressing other major currencies and forcing many countries to lift benchmark interest rates even further, said a Turkish economist and writer.
ISTANBUL, Sept. 30 (Xinhua) -- A stronger U.S. dollar arising from the Federal Reserve's aggressive interest rate hikes has intensified pressure on both developed and developing countries, and may lead to a global recession, Turkish economists have said.
The Fed's rate policies in its own pursuit of 2-percent inflation target have reinforced the greenback but caused a series of troubles worldwide, Mustafa Sonmez, a Turkish economist and writer, told Xinhua.
Last week, the Fed announced the third consecutive three-quarter-point rate hike as it continues to fight soaring inflation at home, with the annual inflation rate surging to 8.3 percent in August.
After the Fed's successive rate hikes, the demand for dollars on foreign exchange markets is getting stronger, depressing other major currencies and forcing many countries to lift benchmark interest rates even further, said Sonmez.
Photo taken on July 12, 2022 shows the Euro sculpture in Frankfurt, Germany. (Xinhua/Shan Weiyi)
The euro has dropped below 0.99 dollars for the first time in two decades. The European Central Bank expects economic activity in Europe to slow down substantially in the coming months, as its President Christine Lagarde has indicated fresh interest rate hikes in the near future.
The British pound has also plunged to a historic low, with its value against the dollar dropping more than 20 percent from the end of 2021 till Tuesday, Bloomberg data showed.
"Anti-inflationary programs implemented through increasing interest rates inevitably bring a contraction and slowdown in the economies. These agendas also lead to stagnation and unemployment, and America has already taken such risks," Sonmez said, warning of the perils the Fed's policies may bring about.
"When the interest rate increases, all kinds of commercial and consumer loan interests in a country also go up. When loan rates rise, both demand and production slow down. Therefore, a global recession and a global slowdown are on the table," Sonmez said.
Enver Erkan, chief economist of the Istanbul-based investment company Tera Yatirim, told Xinhua that import-dependent emerging economies will face increasing difficulties finding direct investment while struggling with soaring costs of all items.
"The increasing American interest rates are determinant on the side of capital flows," said Erkan, who believes "the economies of developing countries, especially in terms of having external financing problems," will be put under great strain.
"The depreciation of local currencies brings about the fact that they are exposed to the effect of inflation on the exchange rate level. That is not favorable for economies dependent on imports," he said, adding many sectors such as shipment will be badly affected due to the decreasing global demand.
"This unstable, economically and geopolitically hazardous environment" could make the problems hard to fix, he added. ■