Africa Braces for Fallout from US and UK Rate Decisions

The recent rate decisions by the US Federal Reserve and the UK's Bank of England have set off alarm bells for African economies, particularly Nigeria. The Fed raised its benchmark rate by 25 basis points to a range of 3.75 to 4 percent on Wednesday, while the BoE held its Bank Rate at 3.75 percent in a 6-3 vote.

Nigeria's economy is exposed to global financial conditions, and higher US interest rates can increase the relative attraction of dollar-denominated assets. This can lead to a stronger dollar, making it more expensive for emerging-market economies like Nigeria to service their dollar-denominated debt.

However, Nigeria's oil advantage may temper the effect of the rate hike. The country's external reserves have risen above $54 billion, and inflation has been moderating. But the same oil shock that benefits Nigeria can also keep global inflation elevated, encouraging major central banks to maintain tighter monetary policies.

Nigel Green, CEO of deVere Group, sees the Fed's move as the beginning of another tightening phase. He predicts another Fed increase in December and warns investors about duration, arguing that holders of long-dated bonds bought when yields were lower could suffer further losses if rates continue to rise.