Inflation, COVID-19 and debt top central bank worries
LONDON: Inflation has emerged as one of the top concerns for central bank reserve managers, alongside a failure to end the COVID-19 crisis and soaring debt levels, showed the results of a UBS survey released on Wednesday.
Fears about inflation and uncontrolled rises in long-term yields, a risk not flagged by participants at all in last year’s Annual Reserve Manager Survey, were raised by 57 per cent of respondents this year as a main risk to the global economy, according to Reuters.
Failure to end the pandemic was cited as a worry by 79 per cent of respondents, with 71 per cent flagging government debt levels.
Reflecting angst about the gravity of COVID-19, half of the participants in the survey believe the virus will be over only after 2022.
Reserve managers from close to 30 global central banks responded to the survey, conducted
during April and June.
“Inflation is back at the top of concerns for central bankers,” Massimiliano Castelli, UBS’s head of strategy and advice, global
sovereign markets, said.
“The majority is saying they expect a rise, but not sort of moving to very high levels of inflation. So it seems there is a sort of view among the central banking community that the current rising inflation that we are experiencing is transitory.”
In terms of risks specifically related to the investment of FX reserves, the top concern, cited by 86 per cent of respondents, remained lower and negative yields within fixed income.
More than two-thirds of participants expect the US Federal Reserve to raise interest rates in 2023, while 30 per cent expect the Fed to do so in 2022.
In contrast, participants expect a later hiking cycle for the European Central Bank, with 33 per cent expecting the first interest rate increase in 2023, 41 per cent in 2024 and only 26 per cent later than 2024. Asked how far leading central banks might go to support markets and the economy if needed, 58 per cent of respondents think the Fed could turn to yield curve control.