High interest rates in the US make investing in emerging economies risky. “First, we see that high interest rates are having a negative impact on growth prospects around the world. Second, high US interest rates mean that's where the money is going: why take risks in emerging markets when you can invest in US government bonds. Third, high interest rates also mean a strong dollar, and when the dollar is strong, for many currencies it leads to depreciation, making it difficult to fight inflation in a country. This was said by the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, during a special session of the World Economic Forum in Riyadh.
The head of the IMF stressed that for the world economy to recover, countries must switch to looser monetary policies as soon as inflation reaches target levels. As Georgieva noted, inflation in the United States will fall to the target by 2025, but the IMF fears that interest rates will not return to pre-pandemic levels.
The US Federal Reserve System, which acts as the central bank, kept the key interest rate at 5.25-5.5% after its meeting in March. US inflation has slowed significantly since June 2022, when it hit a 40-year high of 9.1%. Experts believe that falling inflation is unlikely to allow the regulator to cut rates in the first half of this year.