Hiked US interest rates could choke economy

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THE increase in interest rates by the Federal Reserve to 0.25 percentage point will put pressure on emerging economies such as Zambia as offshore investors are likely to move their assets towards the United States, which will be viewed as a safe haven for investments, Stanbic Bank Zambia has observed.

The US reserve bank has voted to raise interest rates for the first time since 2006 to 0.25 percent with the Wall Street Journal saying the increase in almost a decade is stirring fears of another wave of turmoil in emerging markets that have already been hit by financial squalls and rising debt levels.
Stanbic Bank managing director Charles Mudiwa said it is anticipated that investors will flee for the relative haven of US dollar assets, fuelling the dollar’s broad rally, thus impacting on emerging market currencies such as the Kwacha.
“We expect that there will be a movement towards the dollar because the dollar will be viewed as a safe haven. They will be a movement of money from other investments in emerging markets and this will put pressure on local environments and the Kwacha as well,” he said in an interview with journalists yesterday.
Mr Mudiwa, however, said the movement will be gradual and this will help in cushioning the impact.
“But because it is a gradual movement, the markets are not going to be rushing and that gives time to adjust. What is also important is that it was expected and the markets had already factored it in so we do not expect to see a huge shift,” he added.
Meanwhile, Mr Mudiwa says the banking sector in Zambia remains solid despite the tightened liquidity, which has resulted in commercial banks reducing its lending to the public.
He said there is no need for panic as the sector will remain sound.
“Notwithstanding the tightness in the market, the banking sector in Zambia is solid and sound so there no need for panic or for anyone to worry,” he said.