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3 Minutes to Read (Reuters) – LONDON (Reuters) – According to the results of a UBS study issued on Wednesday, inflation has surfaced as one of the top concerns for central bank reserve managers, alongside a failure to resolve the COVID-19 situation and rising debt levels. On March 7, 2018, the European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany. REUTERS/File Photo/Ralph Orlowski Fears of inflation and uncontrolled hikes in long-term yields, which were not mentioned at all in last year’s Annual Reserve Manager Survey, were highlighted this year by 57 percent of respondents as a major threat to the global economy. 79 percent of respondents said they were concerned about not being able to stop the pandemic, while 71 percent said they were concerned about government debt levels. Half of those polled believe COVID-19 will be eradicated only after 2022, indicating their concern about the virus’s seriousness. The study, which was conducted in April and June, received responses from reserve managers from nearly 30 worldwide central banks. “Inflation is back on central bankers’ minds,” UBS’s head of strategy and advising, global sovereign markets, Massimiliano Castelli, told Reuters. “The majority of people say they expect inflation to grow, but not to very high levels. As a result, it appears that there is a consensus among central bankers that the current rise in inflation is only temporary.” Lower and negative returns within fixed income remained the top concern, mentioned by 86 percent of respondents, when it came to risks especially related to the investing of FX reserves. More than two-thirds of participants expect the Federal Reserve of the United States to raise interest rates in 2023, with 30% expecting it in 2022. Participants, on the other hand, anticipate a later hike cycle from the European Central Bank, with 33% predicting the first rate hike in 2023, 41% in 2024, and only 26% later than 2024. When asked how far major central banks would go to assist markets and the economy if necessary, 58 percent believe the Fed would use yield curve control. According to the report, the trend toward increasing diversification of reserves across asset classes has maintained. Over 40% of central banks consider equities to be an eligible asset class, while 54% of respondents consider emerging market debt to be an eligible asset class, with a trend toward more inflation-protecting assets. In the next three years, nearly 40% of respondents expect wholesale central bank digital currencies to be issued. Tom Arnold contributed reporting from London, and Matthew Lewis edited the piece./nRead More

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