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Gulf Debt Instruments Rise 16%

National Bank of Kuwait. (Reuters)
National Bank of Kuwait. (Reuters)
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Gulf Debt Instruments Rise 16%

National Bank of Kuwait. (Reuters)
National Bank of Kuwait. (Reuters)

Gulf Cooperation Council global sovereign issues reached a historic level of USD50 billion in 2017, contributing to the increase in the total value of the Gulf issues, including the public and private ones. They exceeded the USD100 billion for the second year in the row.

Revenues of debt fluctuated in a limited range until they closed the year at various levels due to tensions in the political scene and the strength of economic data.

A report issued by National Bank of Kuwait revealed that the due revenues of Gulf bonds in eight to nine years were variable. Some of them witnessed a slight change, while risks of others relapsed hugely.

Revenues were influenced by the drop in oil prices and the tension in the region. However the relative success achieved by the GCC countries in carrying out financial reforms and expanding the OPEC-led deal contributed to the hike of revenues.

Further, the re-balance of prices at the end of the year contributed to supporting the stability of these revenues. Revenues improved on Saudi bonds due in 2026, Kuwaiti bonds due in 2027 and Omani bonds due in 2027. They improved between 19 to 40 points compared to only 6 to 9 points for Qatari and Bahraini bonds.

Majority of Gulf central banks followed the example of the US Federal Reserve System in raising the interest prices up to 25 percent three times, while excluding Kuwait and Oman. These steps came in tandem with the need to maintain the currencies’ link to dollar.

For the second year in the row, the GCC total public and private issues exceeded the USD100 billion limit, led by the strength of sovereign issues. The world Gulf debt instruments covered around 50 percent of the government funding needs.

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Vujcic: ECB Should Not 'Overreact' if Inflation Edges Below 2%

FILE PHOTO: The European Central Bank (ECB) in Frankfurt, is photographed during a heavy rain storm ahead of the ECB council meeting later this week, Germany, March 14, 2023. REUTERS/Kai Pfaffenbach/File Photo
FILE PHOTO: The European Central Bank (ECB) in Frankfurt, is photographed during a heavy rain storm ahead of the ECB council meeting later this week, Germany, March 14, 2023. REUTERS/Kai Pfaffenbach/File Photo
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Vujcic: ECB Should Not 'Overreact' if Inflation Edges Below 2%

FILE PHOTO: The European Central Bank (ECB) in Frankfurt, is photographed during a heavy rain storm ahead of the ECB council meeting later this week, Germany, March 14, 2023. REUTERS/Kai Pfaffenbach/File Photo
FILE PHOTO: The European Central Bank (ECB) in Frankfurt, is photographed during a heavy rain storm ahead of the ECB council meeting later this week, Germany, March 14, 2023. REUTERS/Kai Pfaffenbach/File Photo

The European Central Bank should not "overreact" to euro-zone inflation edging below its 2% target as there are good reasons to believe it will come back up, ECB policymaker Boris Vujcic told Reuters.

The ECB cut interest rates on Thursday for the eighth time in a year but signaled at least a policy pause next month, despite projecting inflation at just 1.6% next year. Inflation in the 20 countries that share the euro was 1.9% in May, according to a flash reading published last week.

Vujcic, who is also Croatia's central bank governor, said price growth was likely to bounce back later and that monetary policy should not try to do "precision surgery" on small fluctuations from its goal.

"A few tens of basis points' deviation on either side of the target is not a problem," Vujcic said in an interview on Saturday in Dubrovnik. "Because you will always have small deviations. If you consider them as a problem, then you will overreact. This is not precision surgery."

Vujcic said it was reasonable to expect inflation to edge back up as energy prices find a bottom and the economy accelerates. Euro strength is also unlikely to have second-round effects on prices unless it lasts several quarters, Vujcic said.

Some ECB policymakers, especially Portugal's central bank governor Mario Centeno, worry that euro-zone inflation may slow too much.

Vujcic said he sees the risks surrounding the inflation outlook as "pretty balanced" but cautioned there was "complete uncertainty" surrounding global trade tensions with US President Donald Trump's administration.

Vujcic recalled advice he received as a young deputy governor from then-Federal Reserve Chair Alan Greenspan: a high rate of inflation was more dangerous than a low one. Greenspan cited two decades of relatively benign deflation in the late 19th century, which was partly due to improvements in productivity, Vujcic said.

"Nobody cared about low inflation because of the productivity growth," he said. "You have a monetary policy problem to bring it up. Yes, but why would you insist so much if you don't have a problem in the economy?"

The ECB is reviewing its long-term strategy, including the role of massive bond purchases, or quantitative easing, in reviving inflation when it is too low.

The ECB injected some 7 trillion euros ($8 trillion) of liquidity into the banking system through QE and other tools over the past decade. These schemes were blamed for inflating bubbles in real estate and setting up the central bank for sizeable losses.

"The next time around, people will take the lessons from the previous episode, and I think that the bar for QE would be higher," Vujcic said.

He said QE could help stabilize dysfunctional markets - such as during the 2008 financial crisis and the COVID-19 pandemic - but if used "for years and years to try and bring inflation up, its marginal efficiency declines".

Such calls for self-criticism are shared by some policymakers in the ECB's hawkish camp. But sources told Reuters they were unlikely to feature in the ECB's new strategy document, to be published this summer.