«National»: tightening its monetary policies in parallel with its counterparts global central banks
Claims for US unemployment benefits rose for the third week in a row, to their highest level since November, as more companies announced layoffs, as first-time applications for government benefits jumped by 7,000 to 251,000, the National Bank of Kuwait reported. Ordered during the week ending July 16th. Meanwhile, continuing claims for unemployment benefits rose by 51 thousand to 1.38 million during the week ending July 9, marking the highest weekly increase since November. Amid growing fears of a recession, applications for unemployment benefits may continue to increase, especially following The Federal Reserve has raised interest rates several times to the highest levels in decades, which may limit job applications. But the unemployment rate remained at 3.6 percent for the fourth consecutive month, in line with the lowest levels recorded in 50 years, which we last witnessed before the outbreak of the pandemic in 2020.
Europe
The report pointed out that the European Central Bank raised last week its key interest rate for the first time in 11 years by 50 basis points, to reach the highest rate since 2000. Traders had expected to raise the interest rate at a lower rate of 25 basis points, according to the bank’s statement at its last meeting.
The European Central Bank’s decision is consistent with the trends of other central banks, which have tightened their monetary policy, ending an 8-year experience, during which borrowing costs were below zero.
The Central Bank raised the interest rate on deposit facilities at the bank by 50 basis points to 0 percent. At the same time, the refinancing rate and the marginal lending rate increased by 50 basis points to 0.5 percent and 0.75 percent, respectively.
The sudden tough action came at the same time as the approval of a new policy instrument called the Transitional Protection Instrument, a new bond-buying scheme aimed at helping the eurozone’s most indebted countries and reducing the wide divergence in price differentials for member states.
Speaking following the decision was announced, European Central Bank President Christine Lagarde justified the large interest rate hike, saying: “Inflation continues to rise undesirably and is expected to remain above target for some time. The latest data indicates a slowdown in growth, which overshadows expectations for the second half of 2022 and beyond.
The report indicated that the Central Bank is facing a more difficult task than most of its global peers. Regardless of the monetary policy position of the 19 European economies, the risks of a recession are growing due to the war in Ukraine, which has caused food and fuel inflation to soar.
Germany, the largest economy in Europe, is considered the most vulnerable country in particular as a result of its heavy dependence on natural gas supplies from Russia, which became limited following the imposition of sanctions.
Inflation in New Zealand
The pace of inflation in New Zealand accelerated more than expected in the second quarter of 2022, which increased bets that the situation will require the central bank to continue the path of raising interest rates, as the inflation rate rose on an annual basis to 7.3 percent, compared to 6.9 percent in the first quarter of the year. This indicates that inflation will continue for a longer period than previously expected by the Reserve Bank of New Zealand.
In May, the Reserve of New Zealand forecast that inflation would peak at 7 percent this year, then decline at the end of 2023. However, just last week, the Bank acknowledged the existence of “near-term risks” from high inflation, and moved to raise The interest rate increased by half a percentage point for the third time in a row, as the main interest rate rose to 2.5 percent, with the Central Bank confirming the continuation of tightening monetary policy at a “rapid pace”.
Business downturn
The report indicated a contraction in economic activity in July, in conjunction with a contraction in the manufacturing sector and a stagnation in the services sector. Preliminary data for the eurozone revealed that the composite PMI fell to 49.4 in July from 52.0 in June, falling below the 50 level for the first time since February 2021. Excluding the closure measures to contain the pandemic, this is the first contraction recorded since 2013. Considering the backbone of the economy In Europe, the German economy witnessed a decline in the Purchasing Managers’ Index for the industrial and services sectors to 49.2 points for both.
Economists’ expectations also indicated modest growth rates, while these data are added to the indications that a recession may be imminent. The data also highlights the weakness of the Eurozone economy, which is now facing a sudden rollback of monetary stimulus measures following the European Central Bank raised interest rates for the first time in more than a decade.
“The eurozone economy appears set to contract in the third quarter as business activity slipped in July, and forward-looking indicators point to the worst in the coming months,” said Chris Williamson, chief economist at Standard & Poor’s Global.
United kingdom
Inflation in the United Kingdom reached its highest level recorded in 40 years during the month of June, coinciding with the rise in food and energy prices, which led to the escalation of the cost of living crisis to historical levels, not witnessed by the country before. The consumer price index rose by 9.4 percent on an annual basis, compared to 9.1 percent in May and somewhat exceeded expectations. On a monthly basis, consumer prices rose by 0.8 percent following rising by 0.7 percent the previous month, and the index reading is still much lower than the 2.5 percent monthly increase recorded in April.
The acceleration of the increase is attributed to an increase in the price of car fuel by 9.3 percent during the month. During the past year, car fuel prices rose by more than 40 percent, which led to the price of gasoline and diesel reaching record levels.
The Bank of England has so far raised the interest rate five times in a row by 25 basis points as part of its efforts to curb inflation without pushing the economy into recession.
Regarding the upcoming August meeting, BoE Governor Andrew Bailey suggested in a speech last week that the MPC might consider a more hawkish pace, raising the interest rate by 50 basis points. It might be the UK’s biggest interest rate hike in nearly 30 years.
Bailey stressed that there will be no “conditions or reservations” in the central bank’s commitment to return inflation to the target level of 2 percent, adding that “from the perspective of monetary policy, these times are the biggest challenge to its work system, which aims to reduce high inflation rates.” In the quarter century since the establishment of the Monetary Policy Committee in 1997.
double business activities
The report indicated that business in Britain grew at its slowest pace in 17 months, as the initial readings covering companies in the service and manufacturing sectors fell to 52.8 points, which is the lowest level recorded since February 2021. The Purchasing Managers’ Index revealed that the inflation rate of the input cost has reached the lowest Its levels recorded in 10 months, or the lowest level witnessed by industrial sector companies in 18 months. However, unlike the Eurozone, the readings remained in the expansionary zone above the 50 point level.
Other data published last week showed consumers reduced their purchases in June, with consumer confidence remaining at an all-time low. As consumers struggled with price hikes, retail sales fell by a less-than-expected 0.1 percent m/m compared to May levels.
Coordination by OPEC and its allies
Last week, Russian President Vladimir Putin had a phone conversation with Saudi Crown Prince Mohammed bin Salman to discuss continued cooperation between OPEC and its allies, according to a statement issued by the Kremlin, which stated that “the importance of strengthening coordination within the organization was emphasized.” and its allies. They pointed out that «the organization’s countries continue to fulfill their obligations to maintain balance in the global oil market».
That conversation comes just two weeks before OPEC and its allies meet to discuss production strategy on August 3. These talks may determine whether the group will increase production, as US President Joe Biden has hinted at in the request. Oil prices rose on Friday following their recent decline on the back of weak demand from the United States, the world’s largest consumer of crude oil. Data released earlier last week revealed that US gasoline demand fell nearly 8 percent year on year even during the peak summer driving season. This put pressure on WTI futures, while Brent, by contrast, posted gains for the first time in 6 weeks on the back of rising Asian demand.
