Central banks in the US, eurozone and UK all raised interest rates over the last couple of weeks, despite the substantial stress in financial markets following the collapse of two US banks and the forced purchase of Credit Suisse by UBS.
The European Central Bank was the first to move with a 50-basis point rise on March 16, taking the main refinancing rate to 3.5 per cent. The Federal Reserve and the Bank of England followed last week with 25-basis-point increases to benchmark rates, taking them to 5 per cent and 4.25 per cent, respectively.
The decisions highlighted policymakers’ commitment to bringing inflation back down towards target levels of 2 per cent, and also served to show confidence in their banking systems.
ECB President Christine Lagarde was clear that there was “no trade-off” to be made between price stability and financial stability, and that central banks had the tools to insure the latter while raising rates to achieve the former.
Messaging from the Fed and the Bank of England was a little softer, with Fed Chairman Jerome Powell acknowledging that the Federal Open Market Committee (FOMC) had considered pausing this month, before deciding that that the banking system was resilient enough for them to raise rates.
He stressed that inflation was still too high, and the new economic projections show that the Fed does not expect inflation to get back to 2 per cent until the fourth quarter of 2025. Nevertheless, the FOMC’s interest rate projections — the dot plot — showed that the Fed is probably close to the end of its interest-raising cycle, with just one more 25-basis-point rate increase forecast this year.
The BoE’s monetary policy committee was also relatively dovish in its post-meeting statement, saying that the Bank expected inflation to fall “sharply” over the rest of the year, despite the surprise acceleration in UK consumer inflation to 10.4 per cent year-on-year in February.
The challenge for central banks is threading the needle on inflation and the real economy. The inflation data suggests that more tightening is necessary to cool demand.
Inflation figures for February suggest that core inflation, excluding food and energy costs, is very sticky at a high level across developed markets. Eurozone core CPI rose to 5.6 per cent year-on-year last month, while UK core inflation surged to 6.2 per cent in February from 5.8 per cent in January. US core CPI softened fractionally on an annual basis but remained high at 5.5 per cent.
However, the recent instability in the banking sector means that banks — particularly the smaller ones at risk of bank runs — are likely to aggressively tighten their credit standards and cut back on lending. This could have the effect of another one or two interest rate increases in terms of dampening growth, or push the economy into recession.
Central banks may then not need to increase rates further to bring inflation down. This seems to be what the market is betting on — Fed Funds Futures are pricing at least three 25-basis-point rate cuts by the end of the year in the US.
While policymakers believe they have ring-fenced the troubled banks and provided sufficient liquidity to allow other banks to meet their depositors’ withdrawal requirements, there is a significant amount of uncertainty about the impact this current bout of financial stress will have on the real economy.
The size of the Fed’s balance sheet has grown by $400 billion over the last two weeks as banks have accessed the liquidity facilities provided by the central bank.
However, the amount borrowed by banks last week was significantly smaller than in the week to March 15, when Silicon Valley Bank and Silvergate were taken over by regulators, indicating that the situation has stabilised for now.
It remains to be seen by how much banks curb lending to repair their balance sheets, and the impact that this will have on the real economy and unemployment.
Khatija Haque is chief economist and head of research at Emirates NBD
Hili 2: Unesco World Heritage site
The site is part of the Hili archaeological park in Al Ain. Excavations there have proved the existence of the earliest known agricultural communities in modern-day UAE. Some date to the Bronze Age but Hili 2 is an Iron Age site. The Iron Age witnessed the development of the falaj, a network of channels that funnelled water from natural springs in the area. Wells allowed settlements to be established, but falaj meant they could grow and thrive. Unesco, the UN's cultural body, awarded Al Ain's sites - including Hili 2 - world heritage status in 2011. Now the most recent dig at the site has revealed even more about the skilled people that lived and worked there.
UAE v Gibraltar
What: International friendly
When: 7pm kick off
Where: Rugby Park, Dubai Sports City
Admission: Free
Online: The match will be broadcast live on Dubai Exiles’ Facebook page
UAE squad: Lucas Waddington (Dubai Exiles), Gio Fourie (Exiles), Craig Nutt (Abu Dhabi Harlequins), Phil Brady (Harlequins), Daniel Perry (Dubai Hurricanes), Esekaia Dranibota (Harlequins), Matt Mills (Exiles), Jaen Botes (Exiles), Kristian Stinson (Exiles), Murray Reason (Abu Dhabi Saracens), Dave Knight (Hurricanes), Ross Samson (Jebel Ali Dragons), DuRandt Gerber (Exiles), Saki Naisau (Dragons), Andrew Powell (Hurricanes), Emosi Vacanau (Harlequins), Niko Volavola (Dragons), Matt Richards (Dragons), Luke Stevenson (Harlequins), Josh Ives (Dubai Sports City Eagles), Sean Stevens (Saracens), Thinus Steyn (Exiles)
The specs: 2019 Haval H6
Price, base: Dh69,900
Engine: 2.0-litre turbocharged four-cylinder
Transmission: Seven-speed automatic
Power: 197hp @ 5,500rpm
Torque: 315Nm @ 2,000rpm
Fuel economy, combined: 7.0L / 100km
COMPANY%20PROFILE
%3Cp%3E%3Cstrong%3ECompany%20name%3A%3C%2Fstrong%3E%20OneOrder%3Cbr%3E%3Cstrong%3EStarted%3A%3C%2Fstrong%3E%20March%202022%3Cbr%3E%3Cstrong%3EFounders%3A%3C%2Fstrong%3E%20Tamer%20Amer%20and%20Karim%20Maurice%3Cbr%3E%3Cstrong%3EBased%3A%3C%2Fstrong%3E%20Cairo%3Cbr%3E%3Cstrong%3ENumber%20of%20staff%3A%20%3C%2Fstrong%3E82%3Cbr%3E%3Cstrong%3EInvestment%20stage%3A%3C%2Fstrong%3E%20Series%20A%3C%2Fp%3E%0A
Queen
Nicki Minaj
(Young Money/Cash Money)
UK-EU trade at a glance
EU fishing vessels guaranteed access to UK waters for 12 years
Co-operation on security initiatives and procurement of defence products
Youth experience scheme to work, study or volunteer in UK and EU countries
Smoother border management with use of e-gates
Cutting red tape on import and export of food
Eyasses squad
Charlie Preston (captain) – goal shooter/ goalkeeper (Dubai College)
Arushi Holt (vice-captain) – wing defence / centre (Jumeriah English Speaking School)
Olivia Petricola (vice-captain) – centre / wing attack (Dubai English Speaking College)
Isabel Affley – goalkeeper / goal defence (Dubai English Speaking College)
Jemma Eley – goal attack / wing attack (Dubai College)
Alana Farrell-Morton – centre / wing / defence / wing attack (Nord Anglia International School)
Molly Fuller – goal attack / wing attack (Dubai College)
Caitlin Gowdy – goal defence / wing defence (Dubai English Speaking College)
Noorulain Hussain – goal defence / wing defence (Dubai College)
Zahra Hussain-Gillani – goal defence / goalkeeper (British School Al Khubairat)
Claire Janssen – goal shooter / goal attack (Jumeriah English Speaking School)
Eliza Petricola – wing attack / centre (Dubai English Speaking College)
Some of Darwish's last words
"They see their tomorrows slipping out of their reach. And though it seems to them that everything outside this reality is heaven, yet they do not want to go to that heaven. They stay, because they are afflicted with hope." - Mahmoud Darwish, to attendees of the Palestine Festival of Literature, 2008
His life in brief: Born in a village near Galilee, he lived in exile for most of his life and started writing poetry after high school. He was arrested several times by Israel for what were deemed to be inciteful poems. Most of his work focused on the love and yearning for his homeland, and he was regarded the Palestinian poet of resistance. Over the course of his life, he published more than 30 poetry collections and books of prose, with his work translated into more than 20 languages. Many of his poems were set to music by Arab composers, most significantly Marcel Khalife. Darwish died on August 9, 2008 after undergoing heart surgery in the United States. He was later buried in Ramallah where a shrine was erected in his honour.
Everton 1 Stoke City 0
Everton (Rooney 45 1')
Man of the Match Phil Jagielka (Everton)
UAE currency: the story behind the money in your pockets
