What Do Rising Interest Rates Mean for Middle East Business?
May 9, 2005 US short-term interest rates have taken another measured move upwards. But with the prospect of rates tightening further over the next few months, the era of cheap money is coming to an end. What will this mean in the Middle East were currency pegs mean that US interest rates effectively set the local rates? US Federal Reserve Chairman Alan Greenspan has increased US short-term interest rates by 0.25% to 2.75%. But his accompanying statement left little doubt that similar rate rises would now continue on a monthly basis until rates reach a more neutral level, which some economists put at 3.75%. Mr. Greenspan noted that rising oil prices had yet to be reflected in US consumer price inflation. But this likely source of future inflationary pressure has not been overlooked by the Fed, and the prospect of higher energy prices worldwide will enhance the likelihood of interest rate rises. Higher interest rates have the effect of cooling the world economy, and should dampen GDP gro
