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Concerns about interest rates cause stock markets in Asia to fall

As a result of the US central bank head’s statement that interest rates would continue to rise to combat rising prices, Asian stocks have dropped. The Federal Reserve’s policies, Jerome Powell has warned, will result in “some pain to people and companies.”

When interest rates rise, it costs businesses and consumers more to take out loans, which can have a chilling effect on the economy and inflation.

The Nikkei 225 index of Tokyo stocks were down 2.8% on Monday morning. While the Hang Seng in Hong Kong fell by only 0.8%, the Kospi in South Korea and the ASX 200 in Australia both fell by almost 2%.

In a speech that was highly anticipated and delivered at a conference in Jackson Hole, Wyoming, Federal Reserve Chairman Jerome Powell stated that the central bank was likely to continue hiking interest rates in the coming months and that they may maintain them high “for some time.”

He stated that even though American individuals and businesses would incur additional expenses as a result of the price increases, “the failure to restore price stability would cause far greater hardship.”

The nation with the highest gross domestic product (GDP) in the world is experiencing the highest level of inflation in almost four decades.

According to Vishnu Varathan, head of economics and strategy at Mizuho Bank, who authored a paper on the topic, “Fed Chair Powell went for the throat, communicating (an) uncompromising assault on inflation.”

In addition to this, he stated that the “justification for this unrelentingly hawkish position was as apparent as it was unequivocal.”

According to Dan Wang, chief economist at Hang Seng Bank China, who spoke with the BBC, investors are also concerned about the sluggishness of the Chinese economy.

“The protracted regulation of COVID in China has hurt the country’s economic outlook, which necessitates additional reductions in the policy interest rate. Without additional rate cuts in China, domestic demand is at an unacceptable level ” she said.

Slow economic growth in the second quarter prompted the Chinese central bank to lower lending rates earlier this month. Auto and smartphone production facilities in China’s Sichuan province have also been impacted by the country’s current power crisis.

Official data indicated over the weekend that from January to July, profitability for China’s industrial enterprises fell 1.1% from the same period a year earlier. The government’s efforts to keep the economy growing are being complicated by a crisis in the real estate sector.

Mahnur Mehfooz
Written By

Mahnur is MS(development Studies)Student at NUST University, completed BS Hons in Eng Literature. Content Writer, Policy analyst, Climate Change specialist, Teacher, HR Recruiter.

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