The rate hike strengthens the dollar and generates problems for Ecuador
Posted On 16 Dec 2016
The rise of interest rates in the United States is a blow to the three bodies of the Ecuadorian economy: the dollar, oil, and financing. The Federal Reserve (Fed) rose on Wednesday from 0.50 to 0.75 the benchmark interest rate, and like the flu, global markets caught a cold.
Financing becomes expensive
Ecuador was successful in the international market last week, according to international sources, $ 750 million were offered at a rate of 9.65%, but $ 2.5 billion were demanded. The rise in the price of oil helped to lower the risk, but the increase in the FED rates will increase the new debts.
Markets take refuge in the dollar and abandon oil: the price of the intermediate barrel of Texas oil (WTI) fell by 0.27%, closing at 50.90 dollars. This is bad news for Ecuador, which expects that after the OPEC cuts, oil will continue to rise as in the previous days to the increase of Fed’s rate. Analysts do not seem to expect miracles and talk about a barrel below $ 60, or less.
The dollar makes exports more expensive
The euro fell to its lowest in almost 14 years against the dollar. The European Community currency had a cost of $ 1.0370 in the foreign exchange market, a level that had not fallen since January 2003. The dollar also rose against the Japanese yen, the British pound, the Swiss franc, the Canadian dollar, and the the Mexican peso. This means that Ecuador’s products will be more expensive in the destination countries of its exports.