- March 31, 2023
- Posted by: AITRC 2
- Categories: News, Blog, Report
WEEKLY TRADE POLL FOR AFRICAN COUNTRIES
MARCH 2023
Central banks use monetary policy tools, such as setting interest rates and controlling the money supply, to regulate the economy and stabilize the currency. These policies aim to achieve macroeconomic objectives such as low inflation, high employment, and stable economic growth. The Central Bank of each nation sets short-term interest rates. Interest rates have always impacted trade and commerce, affecting the cost of borrowing money for businesses and consumers. Lower interest rates can make borrowing money cheaper, stimulating spending and increasing economic growth. Higher interest rates, on the other hand, can slow down spending and reduce inflationary pressures. When all other variables are equal, higher interest rates raise the value of one country’s currency relative to those with lower interest rates. Although interest rates can significantly impact a currency’s worth and exchange rates, other interconnected factors ultimately determine a currency’s exchange rate against other currencies.[1] Currency values also play a crucial role in trade and commerce, as they affect the cost of imports and exports. A weaker currency can make exports more competitive and boost economic growth, but it can also lead to higher inflation and reduced purchasing power for consumers. On the other hand, a stronger currency can make imports cheaper and help reduce inflation, but it can also make exports less competitive and slow down economic growth.
The effectiveness of central banks in regulating interest rates and currency values depends on a variety of factors. These factors include the state of the economy, global market conditions, and the policy decisions of other countries. Additionally, central banks must balance the needs of different stakeholders, such as consumers, businesses, and investors, when making decisions about interest rates and currency values. Therefore, a nation’s central bank may raise interest rates to protect the local currency by causing it to gain worth relative to other currencies. However, it is believed that the economy is open, the exchange rate is floating, and the investments are largely risk-free for changes in domestic interest rates to impact the value of the domestic currency. Currency’s worth rises in the presence of rising demand and falls in the absence of falling demand. Due to the higher rate of return on investments, countries with higher interest rates draw in international investors. Due to the increased demand for local currency to pay for investments, the value of the currency rises as a result.[2]
WEEKLY AFRICA TRADE TRADE POLLS (FOURTH WEEK MARCH, 2023)
This frame of reference has led Africa International Trade and Commerce Research (AITCR) to conduct a weekly trade poll for African countries in order to evaluate public opinion and generate responses on the effectiveness of African countries’ Central Banks trade support through interest rates and currency regulation. Finding from the poll reveal that 13 percent of the respondents assert that it is “very effective”, 25 percent opined that it is “weak”, 44 percent said that is “not effective” while 18 percent averred that they are “not sure” about the regulation. Thus, the poll verified that the African economies efforts at trade support through interest rates and currency regulation have not been very effective. Furthermore, the survey emphasizes the reality that much work remains to be done on the continent in terms of monetary policy formulation and implementation.
Moreover, the intended benefits of interest rate regulations, particularly in terms of consumer protection, must be weighed against the potential repercussions for:
- Monetary policy: by limiting the indirect influence of policy rates on market lending rates, an interest rate cap may affect the efficacy of monetary policy transmission to bank lending and domestic liquidity.
- Financial inclusion: In order to avoid losses, interest rate caps may lead credit providers to cease lending to specific clients (such as those with high-risk profiles).
In conclusion, the protection of consumers of financial goods and services raises a number of complex issues, and interest rate regulations may be an inadequate tool for addressing them.[3] The effectiveness of central banks in regulating interest rates and currency values depends on a variety of factors. These factors include the state of the economy, global market conditions, and the policy decisions of other countries. Additionally, central banks must balance the needs of different stakeholders, such as consumers, businesses, and investors, when making decisions about interest rates and currency values.
Finally, in order to support trade and commerce, Africa central banks must carefully consider these factors and implement policies that balance the needs of different stakeholders while achieving macroeconomic objectives. Effective communication with the public and other stakeholders is also critical to build trust and support for Africa central bank policies. Overall, central bank effectiveness in regulating interest rates and currency values is an ongoing process that requires continuous monitoring, analysis, and adjustment to respond to changing economic conditions and policy priorities.
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[1] Interest Rates and Currencies – Exploring the Relationship – BestExchangeRates
[2] What Is the Relationship Between Interest Rates & Currency? | Bizfluent
[3] Guidance Note 2 – Interest rate policy and anti-usury regulations (bis.org)
