Interest Rate Hikes in the US Affect Middle Eastern Countries

As the U.S. Federal Reserve raised its benchmark rates by 0.75 percentage points on Wednesday, the third such rate hike in a row and the fifth increase in a year, Middle Eastern countries look set to suffer more from their already dramatic depreciation in the local currency and high inflation.

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On Thursday, the Turkish lira was trading at a record low of 18.42 to the U.S. dollar, having plunged more than 50 percent from a year ago and more than 35 percent since the beginning of this year. Meanwhile, the Egyptian pound, believed as a relatively strong currency, has dived over 20 percent against the dollar over the past six months, now hovering around 19.50.

The Lebanese currency on Monday sank to a new historic low of 39,000 Lebanese pounds to one dollar on the parallel market, as opposed to the official pegged rate of 1,507 pounds. Lebanon has been struggling in an acute economic crisis and political deadlock since Oct. 2019.

Also on Monday, the Syrian central bank adjusted the official exchange rate of the Syrian pound to the dollar from 2,814 to 3,015, while the quotation on the parallel market had already reached 4,400.

Along with the currency tumble across Middle Eastern countries goes their soaring inflation. The annual consumer price index (CPI) of Türkiye hit 80.21 percent in August, the highest level since 1998, while in Tunisia, inflation rose to 8.6 percent in August, hitting a three-decade high. The year-on-year inflation in Israel rose to 5.2 percent in July, the highest since 2008.

"The dollar's role as the primary currency used in global trade and finance means its fluctuations have widespread impacts," said an article titled Dollar's Rise Spells Trouble for Global Economies published in the Wall Street Journal.

"The U.S. dollar is experiencing a once-in-a-generation rally, a surge that threatens to exacerbate a slowdown in growth and amplify inflation headaches for global central banks," it added.