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Mazhar Muhammad talks about the impact of raising the dollar interest rate on the Iraqi economy


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Mazhar Muhammad talks about the impact of raising the dollar interest rate on the Iraqi economy
 

Baghdad - people  

On Friday, Mazhar Muhammad Salih, the financial advisor to the Prime Minister, identified two things for managing the risks of the operation, foreign reserves, exchange rates and interest.  

  

  

  

Saleh said, in a statement to the official agency, followed by "Nass" (April 6, 2022), that "the implications and impact of raising interest by the American bank on the Iraqi economy are twofold, the first is that the country is the debtor party, as the rise in interest on the US dollar will lead to an increase in the cost of Loans withdrawn in dollars, especially those whose annual interests are determined on the basis of market or (moving) interest in dollars, which the financial markets indicate an increase in, such as the interest (Libor), which is the interest of lending and borrowing between banks in dollars in the London market, and even if some loans carry a fixed interest on the loan itself, but it bears (a hedging risk margin around the fixed interest itself) and it is called (spread), in order to avoid market fluctuations,” noting that “the latter, that is, the (spread) will rise automatically, taking into account the high interest risks.”  

  

The statement added, "As for the second part, and that the country is the creditor, investing in dollar deposits or US bonds for Iraq will be expected to raise returns in the future, with US interest rates mostly rising, and it depends on the nature of the contractual interest, is it fixed or variable?" If the interest on dollar bonds are It has a fixed contractual character until the maturity date, and it is required to liquidate it in the secondary market and transfer it to liquid cash for various purposes.  

  

He pointed out that "in all cases, the country's official investment department remains the most capable party in good hedging, by managing foreign currency risks or foreign reserves in dollars, especially exchange rate and interest rate risks, through good diversification and reducing market risks for Iraq's financial portfolio."  

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How will America's decision to raise interest rates affect the Iraqi economy... Al-Kazemi's advisor answers

Baghdad - Sputnik Arabic, 1920, 07.05.2022
© Sputnik . Павел Давыдов
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The financial advisor to the Iraqi Prime Minister, Mazhar Muhammad Salih, confirmed that the US Central Bank's decision to raise interest rates will have an impact on the Iraqi economy, in the event that it is a creditor or debtor.
According to statements to the Iraqi News Agency (INA), Salih explained that this effect will have two sides, the first of which is "because the country is the debtor, as the increase in interest on the US dollar will lead to an increase in the cost of loans withdrawn in dollars."
 
 
Saleh singled out those loans whose annual interests are determined on the basis of market or (moving) interest in dollars and which the financial markets indicate an increase, such as the interest (Libor), which is the interest of lending and borrowing between banks in dollars in the London market, and even if some loans carry a fixed interest on the loan itself, but it You carry a hedging risk margin around the same fixed interest, called the "spread".
 
While he pointed out that this interest comes to "avoid market fluctuations," he pointed out that "the latter (the spread) will rise automatically, taking into account the risks of high interest."
 
With regard to the second part of the impact on the Iraqi economy, Saleh explained that it is related to the country being the creditor, pointing out that “investment in dollar deposits or US bonds for Iraq will be expected to increase in returns in the future, with mostly US interest rates,” stressing that this matter “depends on The nature of the contractual interest, is it fixed or variable?
 

He explained that "if the interests on dollar bonds are of a fixed contractual character until the maturity date and it is required to liquidate them in the secondary market and convert them into liquid cash for various purposes, then they will be deducted at the new high interest of the dollar, which means losing part of the return as a result of the discount, and we will bear the risk of high interest." .

 
He pointed out that "in all cases, the country's official investment department remains the most capable party in good hedging, by managing foreign currency risks or foreign reserves in dollars, especially exchange rate and interest rate risks, through good diversification and reducing market risks for Iraq's financial portfolio."
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  • Time: 05/05/2022 19:21:25
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6 Arab countries raise interest rates
  
{Economic: Al Furat News} The US Federal Reserve raised the main interest rate, by 50 basis points, as a more aggressive step so far in its battle against inflation spikes.
 

A number of central banks in Arab countries raised interest rates, including Saudi Arabia, the UAE, Kuwait, Bahrain, Qatar and Jordan.
The Central Bank of Egypt is scheduled to meet on May 16 to discuss monetary policy, including raising interest rates.
The US Central Bank’s decision to fight high inflation, which recorded 8.5% last March, was prompted by the lack of supply of goods due to supply chain problems, whether as a result of the Covid closures in China, or the Ukrainian war and its impact on the prices of many basic commodities from food to energy.
Interest rates are one of the central banks' weapons in curbing inflation, by sucking excess liquidity out of the economy and undermining demand.
However, the US raising interest rates means a lot to the direction of the movement of capital around the world.
Your personal wallet
It is expected that the decision of 5 Gulf countries, in addition to Jordan, to raise interest rates, will have a clear impact on the personal portfolio of its citizens, and the expected start will be on the cost of new borrowing.
Therefore, your financing needs will be more expensive at the present time, especially loans with fixed interest, as they carry higher risks for financiers from banks and finance companies, with the possibility of a new increase in interest rates.
Just as the existing loans with variable interest rates, whether it is real estate loans or car financing, they will also witness an increase, and you should review your loans at these times and contact the financing entity for your loans to find out the size of the impact on your personal budget.
It means loans with variable (moving) interest: loans that consist of two parts, one of which is fixed, which is the interest margin obtained by the financing bank and varies from one bank to another and according to each customer and his creditworthiness, in addition to a variable part, which is the official interest rate announced by the Central Bank.
The general activity
is not only that, with the increase in interest rates, the cost of financing economic activities becomes higher, and the economic feasibility of many projects decreases, as investors resort to investing their money in risk-free and fixed-return vessels, with the ambiguity of the economic scene and the presence of a higher return from banks, which is Which may affect all economic activities.
In most cases, bank deposits rise significantly with the rise in interest rates, which may reduce the money supply and lead prices to fall again and thus inflation levels, depending on the speed of response to interest decisions.
stock valuations
On the other hand, many analysts rely on what is known as the "risk-free rate of return" - or the interest rate on treasury bills and bonds - in evaluating companies' shares, as the future cash flows of companies are discounted at a higher interest rate to calculate the present value of those funds, and thus The higher the discount rate (synonymous with interest rate) the lower the present value of the future cash flows and therefore the lower the valuation of the shares.
It is expected that many research centers and investment banks will start adjusting their recommendations and target values for the companies they cover.
Contrary to this picture, bank shares usually witness a rise due to the net interest margin, which moves positively with the rise in interest rates.
determinants of interest
With the US Federal Reserve raising interest rates, many global central banks are forced to follow in his footsteps, as even if their recorded inflation rates are not high enough to raise interest rates, they may be forced to make this decision either to maintain capital flows coming to them. As a result of competition with higher interest rates offered by US Treasury bonds, or because its currency is directly linked to the dollar, and thus the need to maintain exchange rates with the dollar, which is expected to witness a significant increase compared to many currencies.
The US dollar recorded its highest level since the global financial crisis last month, before retreating slightly after the decision to raise interest rates. However, the closest expectation is that the dollar prices will rise against global currencies, especially emerging market currencies.
Gulf countries
In turn, 5 Gulf central banks announced raising interest rates by 50 basis points, namely: Saudi Arabia, Kuwait, Bahrain, the United Arab Emirates and Qatar, with their currencies linked to the dollar, despite inflation readings that were significantly lower than their counterparts in the United States.
The banks attributed their decisions to the high rates of global inflation, and to spare their economies imported inflationary shocks from the rise in global commodity and energy prices.

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