Macro Snapshot — Europe’s diesel shortage threatens growth; Ghana pledges spending cuts to tackle deficit

RIYADH: Mexico and Norway’s central banks have chosen to hike rates, while their Israeli counterpart predicts it too could introduce a quicker rise than expected. 

The Swiss central bank meanwhile is holding firm on lifting the world’s lowest rate. 

Rouble closes at highest since February on gas sales move

The Russian ruble closed on Wednesday at its strongest this month against the dollar both in Moscow and offshore exchanges after President Vladimir Putin said Russia would start selling its gas to “unfriendly” countries in rubles.

The ruble ended below 100 per dollar, still down over 22 percent this year as Russia faces strict sanctions globally, triggered by its invasion of Ukraine late last month.

The rouble gained 6 percent to close at 97.7375 per dollar in Moscow after touching 94.9875, its strongest since March 2. It closed up 8.8 percent at 96.5 on the EBS platform. Both closing prices were the strongest since February.

Diesel shortage in Europe threatens to slow economic growth

European economies face the risk of a shortage of diesel, the preferred fuel for heavy industry, as sanctions on Russian energy threaten to disrupt imports while supply from elsewhere remains limited.

Russia is Europe’s largest supplier of diesel and related fuels, sending over three quarters of a million barrels per day for use in European heavy machinery, transportation, farming, fishing, and for power and heating.

The surge in diesel prices in Europe has already had an impact on industry by pushing up fuel and transportation costs, which are passed on to consumers through higher costs across the economy.

“Governments have a very clear understanding that there is a clear link between diesel and GDP (gross domestic product), because almost everything that goes into and out of a factory goes using diesel,” said John Cooper, director general of Fuels Europe, a division of the European Petroleum Refiners Association.

Norway hikes rates, makes hawkish tilt as inflation rises

Norway’s central bank raised its benchmark interest rate on Thursday as expected, and said it now plans to hike at a faster pace than previously intended to keep a lid on inflation and a rapidly growing economy.

Norges Bank’s monetary policy committee raised the sight deposit rate to 0.75 percent from 0.50 percent, its third hike since September, as unanimously predicted in a Reuters poll of economists and in line with the central bank’s plan. 

It now plans to make eight quarter-percent rate hikes by the end of 2023, including Thursday’s move, three more than the central bank’s previous projection and more than the six hikes anticipated by economists.

Dollar firms, yen holds near lowest since 2015

The dollar strengthened, with the Japanese yen sinking to its lowest since 2015, as the Russia-Ukraine conflict and expectations of central bank tightening kept investors cautious.

Equity markets were volatile, with European stocks slipping, following more hawkish comments from the US Federal Reserve on Wednesday.

Fed policymakers signaled that they could take more aggressive action to bring down inflation, including a possible half-percentage-point interest rate hike at the next policy meeting in May.

The Japanese yen fell against the US dollar for the fifth session in a row, hitting its lowest since 2015 with the Bank of Japan expected to lag policy tightening by other major central banks.

Ghana announces sweeping spending cuts to tackle deficit

Ghana’s finance minister on Thursday announced sweeping spending cuts to reduce the deficit, contain rising inflation and slow the cedi’s slide, with the country facing a looming debt crisis.

The West African gold, oil and cocoa producer has seen consumer inflation rise to over 15 percent, and the cedi currency has lost more than 15 percent of its value against the dollar this year. Its credit ratings have been downgraded over concerns about its ability to pass legislation to raise revenues.

After the central bank announced its largest ever interest rate hike of 250 basis points on Monday, Finance Minister Ken Ofori-Atta laid out a raft of fiscal measures at a news conference in the capital Accra. 

“We are confident these measures will address the short term challenges our nation is facing,” he said. 

The government will cut discretionary spending by an additional 10 percent, on top of a 20 percent cut announced earlier this year, and reduce government ministers’ salaries by 30 percent.

Bank of Mexico raised benchmark rate to 6.5 percent

Mexican President Andres Manuel Lopez Obrador said on Thursday the Bank of Mexico had voted to raise its benchmark interest rate by 50 basis points to 6.5 percent, speaking before the latest decision has been made public by the central bank.

While speaking about inflation, Lopez Obrador noted the US Federal Reserve had last week raised its key lending rate for the first time since 2018, then said Mexico’s central bank had voted to hike its benchmark rate again by 50 basis points.

“We’re going to have an interest rate of 6.5 (percent),” he said, speaking at a regular government news conference. “The Bank of Mexico took the decision yesterday unanimously, and we respect the Bank of Mexico’s autonomy.”

The bank declined to comment on the unexpected announcement. The president’s office did not reply to a request for comment on whether Lopez Obrador had spoken in error.

Israel rate hikes may be “somewhat faster” than planned

The Bank of Israel can no longer remain patient in its monetary policy while inflation keeps rising, and the process of raising rates may be quicker than expected, its deputy governor said on Thursday.

In keeping the benchmark interest rate at 0.1 percent on Feb. 21, the central bank’s monetary policy committee had believed that conditions were ripe for the start of a gradual process of lifting the interest rate amid rising inflation, strong economic growth and higher employment.

However, Bank of Israel Deputy Governor Andrew Abir said the hiking cycle could now speed up.

“Given the recent pick-up in actual inflation and the move in inflationary expectations, the process may be somewhat faster than we originally envisaged,” he said at a conference.

After the last rates decision, Abir had told Reuters the Bank of Israel would not be aggressive in raising interest rates once it starts tightening policy in the coming months since inflation was expected to remain under control.

Swiss National Bank shifts focus to inflation after doubling forecast

The Swiss National Bank will take “all necessary measures” to tackle higher prices in Switzerland, SNB Chairman Thomas Jordan said on Thursday, indicating a shift in tone at the central bank that for years has battled to tame the strong Swiss franc.

The SNB doubled its inflation forecast for this year, citing higher energy costs, production bottlenecks and the Ukraine war.

It now sees 2022 inflation at 2.1 percent, lower than in many countries but still exceeding its target for limiting annual price increases to 0-2 percent.

Unlike the US Federal Reserve and the Bank of England, the SNB held off hiking interest rates, sticking with the world’s lowest interest rate of minus 0.75 percent as expected.

(With input from Reuters)