- UAE Ousted China in US Bond Ownership
- Powell: “Fed Will Not Tolerate Substantial Overshoot of the Inflation Target.”
- Banks to Tighten Credit Conditions in the Euro Area
UAE Ousted China in US Bond Ownership
The United Arab Emirates (UAE) bought more US treasury bonds than China in February, and the country increased its US treasury bonds by nearly $17 billion.
According to the US Treasury Department data, the US bonds of the country, which is the third-largest oil producer of OPEC, increased by approximately 50 percent in February and reached 50.6 billion dollars. This was the UAE’s largest monthly purchase. Thus, in February, it ranked second as the country with the most US bonds after the UK.
The reasons for the increase are unknown, and the UAE central bank has yet to respond to a request for comment. However, the United Arab Emirates, whose capital Abu Dhabi holds nearly 6% of the world’s oil reserves, may have amassed enough cash to invest in the $21 trillion Treasury market.
It is stated that the country, which owns approximately 6 percent of the world’s oil reserves, may have purchased this amount to buffer against the decline in petro-dollar revenues.
In February, China bought $9 billion in US treasury bonds, and the total US treasury bonds it held reached $1.1 trillion. This was the highest level since mid-2019.
The UAE, like its neighbors in the region, needs sufficient reserves to maintain trust in its dollar-pegged currency. In February, the central bank’s gross international reserves increased to nearly 389 billion dirhams ($105.9 billion), up from 381.9 billion dirhams the previous month.
The IMF predicts that the United Arab Emirates Central Bank’s reserves will reach $119 billion this year.
Besides, the United Arab Emirates central bank said on Tuesday it has extended until mid-2022 some stimulus measures introduced last year to mitigate the impact of the coronavirus crisis on the economy.
Powell: “Fed Will Not Tolerate Substantial Overshoot of the Inflation Target.”
Fed Chairman Jerome Powell said the bank is committed to its promise to limit inflation above its target.
US Federal Reserve (Fed) Chairman Jerome Powell said that the US economy would see a “slightly higher” inflation this year as the recovery of the US economy strengthens, and the impact of supply difficulties push prices up in some sectors but is dependent on the Fed’s commitment to limit rises above the target in inflation.
In a letter that Powell sent to Senator Rick Scott on April 8 in response to a letter he sent on March 24 and received by Reuters, he said, “We do not seek inflation that substantially exceeds 2 percent, nor do we seek inflation above 2 percent for a prolonged period.”
“I would emphasize, though, that we are fully committed to both legs of our dual mandate – maximum employment and stable prices.”
“The data is clear that inflation is rising, and Chair Powell continues to ignore this growing problem,” Scott’s office told Reuters in the email. “Senator Scott remains concerned about the impact inflation will have on low and fixed-income American families, like his growing up. He is calling on Chair Powell to wake up to this threat, lay out a clear plan to address rising inflation and protect American families.”
Powell wrote in his letter that low inflation limits the Fed’s ability to counter economic shocks with easy policy and that the Fed is now looking for inflation moderately above 2% after a decade of too-low inflation.
“We understand well the lessons of the high inflation experienced in the 1960s and 1970s and the burdens that experience created for all Americans,” Powell said in the letter. “We do not anticipate inflation pressures of that type, but we have the tools to address such pressures if they do arise.”
Banks to Tighten Credit Conditions in the Euro Area
In the European Central Bank’s (ECB) “Bank Credit Survey” report, it was stated that banks in the Eurozone tightened credit conditions for companies in the first quarter and would tighten even more in the second quarter.
“This reflects banks’ uncertainty regarding the severity of the economic impact of the third wave of the pandemic and the progress in the vaccination campaign,” the ECB said in a quarterly lending survey.
Much of Europe’s services sector is living on emergency cash after more than a year of lockdowns. The ECB is concerned that banks will turn off the money taps, driving businesses out of business and leaving the economy scarred.
Credit conditions for housing loans loosened marginally in the first quarter. Still, banks plan to more than reverse this trend in the second quarter, despite rising net demand for mortgages, according to the survey.
On the other hand, the ECB’s monetary policy board meeting to be held on Thursday is in the focus of investors. In his speech last week, ECB President Christine Lagarde stated that the Eurozone economy is still standing with monetary and financial incentives and said that these incentives could not be stopped until the economy is fully recovered.
While the ECB is not expected to change interest rates this week, it is predicted that Lagarde may give hints of possible changes on the pace of the bond purchase program in the second quarter of the year.
The “Bank Loan Survey” of the ECB, which provides information about the banks’ credit conditions in the Euro Zone, is conducted four times a year. The last survey on March 11-26 was conducted with the participation of 143 banks.