Doha, November 02 (QNA) – Many economic and financial events and decisions that international markets are awaiting will take place this week. Almost all eyes will turn today towards the Federal Reserves decision regarding the inflation rate (the US Central Bank), especially after that its European counterpart urgently raised the interest rate of 75 basis points in a preventive measure to curb inflation rates from rising, even more, to control inflation that looms over European economies with recession.
All eyes will turn to the Bank of England (BoE) meeting tomorrow, in which the bank is likely to announce raising the interest rate between 50 to 75 basis points.
In this context, Economist Bashir Al Kahlout confirmed in a statement to Qatar News Agency (QNA), that financial markets and banks in most parts of the world are awaiting the Federal Reserve’s meeting in New York today, in which the Reserve is expected to take an important decision to raise the interest rate on the dollar for the fifth time this year, in face of high inflation rates in the United States unleashed by the Covid-19 pandemic.
He explained that the Federal Reserve reduced the inflation rate close to zero after the financial crisis that hit the American economy and the world in 2009. This rate remained close to zero throughout those years until things changed post-Covid-19 pandemic.
The economist pointed out that because the inflation rate in the United States has been increasing since the last quarter in 2021 to the level of 6.5 percent, the Fed has made a swift decision to raise the basic interest rate strongly, and is planning to raise the interest rate by 75 percentage points, as in the previous time two months ago, as part of its efforts to curb inflation and not get it out of control, especially in light of the repercussions of the Ukrainian-Russian war and its strong effects on commodity and energy prices.
Whilst all sources expected an interest rate rise by 75 basis points, some see the possibility of a 50-basis point raise only, therefore leaving another opportunity for another increase in December.
Al Kahlout added that International financial markets have anticipated this decision with intense selling, which resulted in a decline in US and international stock indices, given that increasing interest rates reduces demand for stocks and increases demand for bank deposits and other financial instruments with a fixed return such as bonds.
The Economist pointed out that it was customary for the world’s central banks to follow the example of the US Federal Reserve, and to raise interest rates on their currencies; This is to maintain the stability of the exchange rates of their currencies. If they failed to do so, depositors will often move their deposits to currencies that give a greater return or to bonds, affecting the stability of the exchange rates of those currencies.
Al Kahlout continued by saying that given the correlation of the Qatari Riyal (and GCC currencies) to the dollar at specific levels, the Gulf central banks are also hurrying to raise interest rates on their currencies in parallel. It is worth noting that the inflation rate in Qatar has been negative for several years. It then rose strongly in the last two years, reaching 6 percent last September, with the Qatari Stock Exchange Index falling during the previous weeks below the level of 12,500 points, after it had reached 14,000 points earlier in the year.
On the other hand, Financial Analyst Ramzi Qasmieh confirmed in a statement to Qatar News Agency (QNA), that this week will be economic par excellence with a political flavor, recalling the European Central’s decision to raise the interest rate by 75 basis points for the second time in a row, and is also expected to follow the same trend next month, by another 50 basis points.
Qasmieh said that inflation rates are on an upward trend in the eurozone, reaching 10.7 percent, although expectations hovered around 10.2 percent, therefore the inflation level was actually 1.5 points higher compared to expectations, due to the repercussions of the Russian-Ukrainian war on the prices of food, energy, and other commodities.
The Financial Analyst pointed out that the US Federal Reserve is going to announce its decision regarding the interest rate this evening, which is expected to be at a level of 75 basis points, with the continuation of its strict policy approach aiming to curb inflation.
Qasmieh also made it clear that the markets are on the watch for the labor statistics, to be released on Friday, November 4th, since those statistics receive wide attention, due to the US Federal Reserves heavy reliance on them in the process of raising interest rates.
After the US economy added 263,000 jobs, the economy is expected to add nearly 200,000 other jobs, in addition to a decline in the annual growth of average wages.
Qasmieh expected that the interest rate level would reach 5 percent in 2023 and that this rise would increase the strength of the dollar, compared to other currencies, and thus reduce the competitiveness of American products in global markets, which will affect the labor market in the near term and early 2023, threatening the US economy of a phase of economic stagnation, which American economic elites warned of.
He continued at the conclusion of his statement that countries with high debt ratios compared to the output will suffer in turn from the strength of the dollar. (QNA)
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