Analysis: Turkey is among the countries to suffer hardest by the FED's high interest rate policy

Analysis: Turkey is among the countries to suffer hardest by the FED's high interest rate policy
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Frontier economies like Turkey are going to get hammered if the Fed rates stay high, economists said.

Long lasting high US interest rates will hit the emerging markets hard, especially in countries like Turkey where lending risk is rated as high or very high, an analysis by Reuters said on Sunday. 

The analysis said that the central banks of the US and the EU made clear that they will continue the hike in the policy rates for the months to come to fight the inflation that is nearing double digit numbers.

As this extraordinary effort will reverberate beyond the developed countries, most likely a recession with job losses and shockwaves will follow through emerging markets, it said.

"Even if we enter a recession, we have basically little choice but to continue our policy path," Reuters cited  European Central Bank board member Isabel Schnabel as saying. 

As the higher interest rates channel liquidity to the US and the EU,

It pushes up emerging market risk premiums even higher and makes borrowing even more difficult.

Bigger countries like China and India appear to be well isolated but a host of smaller countries from Turkey to Argentina are clearly suffering, Reuters said. 

A monitor by S&P Global considers the funding risk of lenders in South Africa, Argentina and Turkey high or very high. 

"There are a few frontier economies like Sri Lanka, Turkey and so on that are going to get hammered if the Fed hikes rates and rates stay high," said Eswar Prasad, an economics professor at Cornell University.

"A two to three year horizon will start making things difficult...If it becomes clear the Fed is going to keep rates high for a long time, the pressures could hit home right away,” Prasad added.