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UK and Gulf raise interest rates; New Zealand returns to growth — Macro Snapshot

RIYADH: Central banks in the Gulf and the UK raised interest rates, while economic growth in New Zealand resurfaced. The United States has seen changing levels of unemployment.

UK interest rates

The Bank of England raised interest rates on Thursday in a bid to prevent rapid inflation from taking hold, but with households hit hard by soaring energy bills, it softened its language on the need for further increases.

Eight of the nine members of the Monetary Policy Committee voted to raise the Bank Rate to 0.75% from 0.5%, their third hike in as many meetings and returning rates to pre-pandemic levels.

The BoE said inflation is expected to hit around 8% in April – almost a percentage point higher than expected last month and four times its 2% target – and warned it could peak even later. during this year.

Soaring energy bills, even higher due to the conflict in Ukraine, means the squeeze on UK household budgets is likely to be much bigger than what the BoE predicted last month – which itself was expected to be the biggest. for 30 years.

Reflecting those concerns about the growth outlook, policymakers on Thursday pushed back on investors’ bets that the bank rate would rise sharply to around 2% by the end of this year, toning down its language on the need for further hikes. .

“The Committee judged that further modest tightening may be appropriate in the coming months, but there were risks on both sides of that judgment depending on how the medium-term outlook changes,” 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 key interest rates by a quarter of a percentage point in line with the US Federal Reserve as it entered a cycle of monetary tightening in a new aggressive stance against rising inflation .

The six Arab countries of the Gulf Cooperation Council generally follow the Fed’s lead on interest rates, as their currencies are pegged to the US dollar, with the exception of Kuwait, which is pegged to a basket of currencies including the dollar.

“If Gulf policymakers did not allow interest rates to follow those of the United States, capital would flow out of their economies and this would put downward pressure on their currencies,” wrote James Swanston, economist for the Middle East and North Africa at Capital Economics. in a research note.

The Saudi Central Bank – also known as SAMA – raised its repo and reverse repo rates by 25 basis points each to 1.25% and 0.75%, respectively.

“The policy rate adjustments are consistent with SAMA’s objectives of maintaining monetary stability and supporting financial sector stability amid changing domestic and international monetary conditions,” the Central Bank of Saudi Arabia said in a statement.

The Central Bank of the United Arab Emirates raised its base rate, which applies to its overnight deposit facility, by 25 basis points to 0.4%. The CBUAE maintained the rate of borrowing short-term cash from it through all standing credit facilities at 50 basis points above the base rate.

Unemployment in the United States rolls

Last week’s claims data covered the period the government surveyed business establishments for the non-farm payrolls component of the March jobs report. Claims dropped significantly between the February and March survey periods.

The economy created 678,000 jobs in February. Employment growth was helped by the return of some workers to the labor market amid a significant drop in COVID-19 infections.

The claims report also showed the number of people receiving benefits after an initial week of help fell by 71,000 to 1.419 million in the week ended March 5. This was the lowest level for these so-called continuing claims since February 1970.

While permits for future home construction fell 1.9% to a rate of 1.859 million units, they weren’t too far off the nearly 16-year high reached in January. This suggests that an acute housing shortage will continue to support residential construction even if 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 confirmed expectations that the central bank would expand further interest rates.

Production based on output rose 3.0% in the quarter, Stats NZ reported on Thursday. That was slightly below economists’ median expectations of a 3.2% rise and a sharp turnaround from a revised 3.6% drop in the September quarter, when shutdowns dampened the activity.

The Reserve Bank of New Zealand last month forecast growth of 2.3% for the December quarter.

“The fourth quarter GDP data reflects a robust, albeit very stimulated, economy,” ANZ economists said in a report.

Although there were a number of uncertainties over the outlook, the main concern was rising inflation in New Zealand which would force the RBNZ to tighten policy further, they added.

Annual GDP rose 3.1%, slightly below a Reuters poll forecast for a 3.3% rise.

The RBNZ has already raised interest rates three times since October.

“Given that the rebound in activity in the fourth quarter exceeded RBNZ expectations, today’s data will keep the Bank on its way,” Ben Udy, an economist at Capital Economics, said in a statement. a rating.