Baku, Azerbaijan, Dec. 18
By Aygun Badalova - Trend:
US Federal Reserve's decision will likely to increase market volatility and cost of funding in EBRD (European Bank for Reconstruction and Development) countries, the bank said in a report.
Analysts of the bank also believe that the decision may affect the growth prospects of these countries, although the impact is likely to be limited, given that most EBRD countries were not among the major beneficiaries of the post-crisis capital inflows.
On December 16, the US Federal reserve raised its federal funds rate by 0.25 percent to the target range of between 0.25 to 0.5 percent.
The report said that countries with larger short-term loans or portfolio inflows as well as those with a larger share of US dollar-based investors - such as Jordan, Ukraine and Turkey - may be more exposed to the US rate hike than those where foreign direct investments or non-dollar inflows in general dominate.
Countries in Eastern Europe, the Caucasus and Central Asia will be affected indirectly through their exposure to Russia and may see their cost of funding rise slightly, particularly those with a higher share of unhedged dollar-denominated debt, analysts of the EBRD said.
The Southern and eastern Mediterranean countries may face higher costs of funding, given that most of their investors are dollar-based, but overall impact is likely to be limited, analysts believe.
At the same time analysts believe that faced with somewhat lower portfolio inflows, EBRD countries may benefit from alternative sources of funding, such as FDI, private equity, public-private partnerships, and more efficient use of domestic sources of funding through building deeper local capital markets.