Emerging market countries are plagued by US interest rate hikes.

　　Last week, many countries announced a new round of interest rate hikes during the year. Among them, the vast number of emerging market countries and developing countries have not yet shaken off the high inflation impact caused by the excessive currency in the United States and Europe, and have been plagued by the capital outflow and debt problems caused by the radical interest rate hike in the United States. It can be said that "the house leaks overnight."

　　After the United States announced the interest rate hike again, from Western Europe to South America, from South Asia to Oceania, it became the unanimous decision of all countries to follow up the interest rate hike. On August 2nd, the Reserve Bank of Australia (the central bank) announced that it would raise interest rates for the fourth time this year, raising the benchmark interest rate by 50 basis points to 1.85%, and at the same time raising the interest rate on foreign exchange settlement balance by 50 basis points to 1.75%. On the 3rd, the Central Bank of Brazil announced the fourth interest rate hike this year, raising the benchmark interest rate by 50 basis points to 13.75%. On the 4th, the Bank of England announced that it would raise the benchmark interest rate from 1.25% to 1.75%, which is the sixth time that the Bank of England has raised interest rates since last December. On the 5th, the Bank of India announced the third rate hike this fiscal year (April 2022 to March 2023), raising the benchmark interest rate by 50 basis points to 5.4%.

　　The increasing inflationary pressure has become the number one "enemy" of many central banks. According to the data of the International Monetary Fund (IMF) in July, at least 75 central banks around the world have raised interest rates since July 2021. Some analysts pointed out that under the background of COVID-19 epidemic, high inflation and weak growth, tightening monetary policy to combat inflation will obviously slow down global economic activities. According to incomplete statistics, the average increase of interest rates in emerging market countries is about twice that in developed economies, which shows that inflation has hit them harder. If the impact of the Fed’s continuous aggressive interest rate hike is superimposed, it means that the capital outflow and debt problems it faces are more serious than those in developed economies.

　　Emerging market countries and developing countries are facing a severe capital outflow situation. The US authorities’ aggressive interest rate hike quickly pushed up the US dollar index, and venture capital in emerging market countries took the opportunity to sell assets to accelerate the outflow. On August 3rd, the data released by the International Finance Association (IIF) showed that as of July this year, emerging markets had suffered a net outflow of portfolio funds for five consecutive months, totaling more than $39 billion. This has become the longest record of continuous net outflow of funds from emerging markets since 2005, and it is also consistent with the time line when the Federal Reserve started to raise interest rates in March and continuously tightened it. According to the analysis of relevant persons in IIF, most of the motivation of recent capital flow can be attributed to the US dollar (exchange rate). Moreover, the yield of long-term government bonds in almost all developed economies has risen sharply, which has a significant impact on the preference of funds to avoid risks.

　　Capital outflow has aggravated the depreciation of local currencies in emerging market countries, causing a chain reaction. Although some central banks have tried to slow down the depreciation of their currencies, the exchange rates of many currencies against the US dollar, including the euro, Indian Rupee, Chilean peso and Sri Lankan rupee, have all hit record lows this year, as the Federal Reserve has continuously released hawks to raise interest rates and the US dollar has soared. Currency devaluation drives up the price of imported goods, which leads to the expansion of dollar-denominated debt, and causes "by-products" such as foreign exchange shortage, intensified inflation, increased fiscal deficit and political instability and social unrest in relevant countries and regions. In mid-July, the IMF warned that more than 30% of emerging market countries and 60% of low-income countries were already in or close to excessive debt. In response to the crisis, countries and regions concerned adopt austerity policies such as raising interest rates, which will further increase the cost of borrowing, and debt repayment will become a heavy burden, and corporate activities and household consumption may further decline.

　　At present, the U.S. economy has fallen into a technical recession, and the Federal Reserve’s tightening of monetary policy shows no signs of turning, which makes the rapid cooling of the U.S. economy and the downward pressure on the global economy more and more clear. Some analysts pointed out that the world economic growth, especially the emerging market countries, is subject to the monetary policy of the United States, showing the characteristics of "starting from the United States and declining because of the United States", which reflects that the United States is only willing to enjoy the "dividend" of the US dollar as the main international currency at present, but is unwilling to bear the corresponding responsibility. This is one of the chronic diseases that need to be corrected urgently in the global economic governance system. (This article Source: Economic Daily Author: Lian Jun)