Gulf and UK central banks have raised interest rates, while economic growth in New Zealand has reemerged. The US has seen development in unemployment levels. The Bank of England raised interest rates on Thursday in a bid to stop fast-rising inflation from becoming embedded, but with households facing a huge hit from soaring energy bills, it softened its language on the need for more increases.
Eight of the nine Monetary Policy Committee members voted to raise the Bank Rate to 0.75 percent from 0.5 percent, their third hike in as many meetings and taking rates back to their pre-pandemic level.
The BoE said inflation was set to reach around 8 percent in April — almost a percentage point more than it forecast last month and four times its 2 percent target — and warned it could peak even higher later in the year.
UK interest rate
Soaring energy bills, driven even higher by the conflict in Ukraine, mean the squeeze on British household budgets is likely to be much bigger than the BoE had predicted last month — which itself was set to be the biggest in 30 years.
Reflecting these worries about the outlook for growth, policymakers on Thursday pushed back against investors’ bets that Bank Rate will rise sharply to around 2 percent by the end of this year, toning down its language on the need for more hikes.
“The Committee judged that some further modest tightening might be appropriate in the coming months, but there were risks on both sides of that judgment depending on how medium-term prospects evolved,” the BoE said.
Last month the MPC said further modest tightening “is likely to be appropriate.”
Gulf interest rates
Gulf central banks on Wednesday raised their main interest rates by a quarter percentage point in lockstep with the US Federal Reserve as it began a monetary tightening cycle in a newly aggressive stance against rising inflation.
The six Arab nations of the Gulf Cooperation Council typically follow the Fed’s lead on interest rates as their currencies are pegged to the US dollar, except Kuwait’s, which is pegged to a basket of currencies including the dollar.
“If policymakers in the Gulf did not allow interest rates to follow those in the US, capital would flow out of their economies and this would put downward pressure on their currencies,” James Swanston, Middle East and North Africa economist at Capital Economics wrote in a research note.
The Saudi Central Bank – also known as SAMA – increased both its repo and reverse repo rates by 25 basis points each to 1.25 percent and 0.75 percent, respectively.
“Policy rate adjustments are consistent with SAMA’s objectives of maintaining monetary stability and supporting the stability of the financial sector in the evolving domestic and international monetary conditions,” Saudi Central Bank said in a statement.
The Central Bank of the UAE raised its base rate, which is on its overnight deposit facility, by 25 bps to 0.4 percent. CBUAE maintained the rate on borrowing short-term liquidity from it through all standing credit facilities at 50 bps above the base rate.
US unemployment rolls
Last week’s claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls component of March’s employment report. Claims fell considerably between the February and March survey periods.
The economy created 678,000 jobs in February. Employment growth has been aided by the return of some workers to the labor force amid a significant decline in COVID-19 infections.
The claims report also showed the number of people receiving benefits after an initial week of aid dropped 71,000 to 1.419 million during the week ended March 5. That was the lowest level for these so-called continuing claims since February 1970.
While permits for future home construction fell 1.9 percent to a rate of 1.859 million units, they were not too far from the nearly 16-year high touched in January. That suggested an acute shortage of houses will continue to underpin residential construction even as mortgage rates rise.
New Zealand GDP
New Zealand’s gross domestic product returned to growth in the final quarter of 2021 as the economy emerged from COVID-19 lockdowns, and economists said the data supported expectations the central bank would raise interest rates further.
Production-based output grew by 3.0 percent in the quarter, Stats NZ said on Thursday. That was a touch below economists’ median expectations of a 3.2 percent raise and a sharp turnaround from a revised 3.6 percent fall in the September quarter when lockdowns had curbed activity.
The Reserve Bank of New Zealand last month forecast growth for the December quarter at 2.3 percent.
“The Q4 GDP data reflect a robust, albeit very stimulated economy,” ANZ economists said in a report.
While there were a number of uncertainties on the outlook, the main concern was rising inflation in New Zealand that would require the RBNZ to further tighten policy, they added.
Annual GDP rose 3.1 percent, a little below a Reuters poll forecast of a 3.3 percent raise.
The RBNZ has already raised interest rates three times since October.
“Given that the rebound in activity in Q4 was above the RBNZ’s expectations, today’s data will keep the Bank on its hiking path,” Ben Udy, an economist at Capital Economics, said in a note.