Inflation, COVID-19 and debt top central bank worries: UBS survey

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% of respondents this year as a main risk to the global economy.

Failure to end the pandemic was cited as a worry by 79% of respondents, with 71% flagging government debt levels.

Reflecting angst about the gravity of COVID-19, half of 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, told Reuters. "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% of respondents, remained lower and negative yields within fixed income.

More than two-thirds of participants expect the U.S. Federal Reserve to raise interest rates in 2023, while 30% expect the Fed to do so in 2022.

In contrast, participants expect a later hiking cycle for the European Central Bank, with 33% expecting the first interest rate increase in 2023, 41% in 2024 and only 26% later than 2024. Asked how far leading central banks might go to support markets and the economy if needed, 58% of respondents think the Fed could turn to yield curve control.

The trend towards more diversification of reserves across asset classes continued, the survey showed. Equities is an eligible asset class for over 40% of central banks and emerging market debt for 54% of respondents, while there was a shift towards more assets protecting against inflation.

Nearly 40% of respondents expect wholesale central bank digital currencies to be launched within the next three years.

With prices soaring in crisishit Lebanon, Sherine can no longer afford sanitary pads. So instead each month, she is forced to make her own using baby nappies or even rags.

"With all the price hikes and the frustration of not being able to manage, I'd rather stop having my period altogether," the 28-yearold told AFP, tears rolling down her cheeks.

The price of menstrual pads, the vast majority of which are imported, has risen by almost 500 percent since the start of a financial crisis the World Bank has dubbed likely one of the world's worst since the 1850s.

Packs of sanitary towels now cost between 13,000 and 35,000 Lebanese pounds-between $8.60 and $23 at the official exchange rate-up from just 3,000 pounds ($2) before the economic crisis.

With more than half the population living in poverty, tens of thousands of women are now on a desperate hunt for affordable alternatives. Sherine initially turned to cheap sanitary pads that she said caused skin irritation, but even those have become too costly.

"Right now, I'm using towels and pieces of cloth," she said.

"At first, I felt defeated," the young mother told AFP, her hair tied up in a bun.

"But I chose to put my daughter first. I would rather buy her milk. As for me, I can make do."

But that has often meant repurposing some of the diapers a charity shop has given her for her toddler, cutting each in half to create two separate pads.

She said the process has been one of trial and error.

In the beginning, "I was always having to check if (blood) had leaked and stained my pants," she said.

The Lebanese pound has lost more than 90 percent of its value against the dollar on the black market since the autumn of 2019, and Lebanese earning salaries in the local currency have seen their buying power plummet.

The government has subsidised essential goods including medicine, fuel and flour to ease the blow, but has come under fire for failing to include pads on its list.

In the absence of state support, the Dawrati (My Period) initiative was launched last year to address rising period poverty in Lebanon.

The group distributes free menstrual products to women in need, including some who were once members of the fast-vanishing middle class.

"Middle-class women also need them-like a bank employee whose salary in Lebanese pounds is no longer enough to get by," said co-founder Line Masri.

According to Dawrati, half of women suffering from period poverty are using newspaper, toilet paper or old rags instead of pads, while two-thirds of adolescent girls have no means of purchasing sanitary products.

Yet the association is struggling to keep up.