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Emerging and Frontier Markets in Africa Looking Forward to US Interest Rate Cut

The chairman of the US Federal Reserve has indicated that it intends to cut interest rates by as much as 75 basis points in 2024. Since March 2022, the Federal Open Market Committee has voted to hike rates on 11 occasions in an attempt to bring down inflation in the US, which peaked at 9.1% in June 2022. The benchmark Federal Funds Rate currently stands at a two-decade high of between 5.25% and 5.5%, having been practically at zero during the coronavirus pandemic. Higher interest rates in the States helped feed into a stronger US dollar, with foreign exchange traders incentivised to obtain greater exposure to the greenback by the promise of higher yields. In turn, many African currencies posted steep declines against the dollar, making imports and commodities priced in dollars more expensive in local terms and therefore contributing to higher levels of inflation. Elevated interest rates and a stronger dollar have also made it more expensive for African countries to service dollar-denominated debt, something that has helped push many countries on the continent into debt distress. According to the World Bank, nine African countries are now in debt distress and a further 15 are at “high risk” of being unable to fulfil their repayment requirements. Zambia and Ghana have already defaulted on their debts, with Ethiopia poised to follow suit.