Worries about recent bank failures and bailouts are rippling through the world economy, from New York to Beijing, and central bankers are working to calm depositors and financial markets. Mike O’Sullivan reports from California, where a major player in the tech industry, Silicon Valley Bank, collapsed earlier this month. Rob Garver contributed.
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The Federal Reserve extended its year-long fight against high inflation Wednesday by raising its key interest rate by a quarter-point despite concerns that higher borrowing rates could worsen the turmoil that has gripped the banking system. 

“The U.S. banking system is sound and resilient,” the Fed said in a statement after its latest policy meeting ended. 

At the same time, the Fed warned that the financial upheaval stemming from the collapse of two major banks is “likely to result in tighter credit conditions” and “weigh on economic activity, hiring and inflation.” 

The central bank also signaled that it’s likely nearing the end of its aggressive streak of rate hikes. In a statement, it removed language that had previously indicated it would keep raising rates at upcoming meetings. The statement now says “some additional policy firming may be appropriate” — a weaker commitment to future hikes. 

And in a series of quarterly projections, the policymakers forecast that they expect to raise their key rate just one more time – from its new level Wednesday of about 4.9% to 5.1%, the same peak level they had projected in December. 

Still, in its latest statement, the Fed included some language indicating its inflation fight remains far from complete. It said hiring is “running at a robust pace” and noted that “inflation remains elevated.” 

It removed a phrase — “inflation has eased somewhat” — it had included in its previous statement in February. 

Speaking at a news conference, Chair Jerome Powell said, “The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.” 

The latest rate hike suggests that Powell is confident the Fed can manage a dual challenge: Cool still-high inflation through higher loan rates, while defusing turmoil in the banking sector through emergency lending programs and the Biden administration’s decision to cover uninsured deposits at the two failed banks. 

The Fed’s signal that the end of its rate-hiking campaign is in sight may also soothe financial markets as they digest the consequences of the U.S. banking turmoil and the takeover last weekend of Credit Suisse by its larger rival UBS. 

The central bank’s benchmark short-term rate has now reached its highest level in 16 years. The new level likely will lead to higher costs for many loans, from mortgages and auto purchases to credit cards and corporate borrowing. The succession of Fed rate hikes also has heightened the risk of a recession. 

The Fed’s new policy decision reflects an abrupt shift. Early this month, Powell had told a Senate panel that the Fed was considering raising its rate by a substantial half-point. At the time, hiring and consumer spending had strengthened more than expected, and inflation data had been revised higher. 

The troubles that suddenly erupted in the banking sector two weeks ago likely led to the Fed’s decision to raise its benchmark rate by a quarter-point rather than a half-point. Some economists have cautioned that even a modest quarter-point rise in the Fed’s key rate, on top of its previous hikes, could imperil weaker banks whose nervous customers may decide to withdraw significant deposits. 

Silicon Valley Bank and Signature Bank were both brought down, indirectly, by higher rates, which pummeled the value of the Treasurys and other bonds they owned. As anxious depositors withdrew their money en masse, the banks had to sell the bonds at a loss to pay the depositors. They couldn’t raise enough cash to do so. 

After the fall of the two banks, Credit Suisse was taken over by UBS. Another struggling bank, First Republic, has received large deposits from its rivals in a show of support, though its share price plunged Monday before stabilizing. 

The Fed is deciding, in effect, to treat inflation and financial turmoil as two separate problems, to be managed simultaneously by separate tools: Higher rates to address inflation and greater Fed lending to banks to calm financial turmoil. 
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Оцінка, проведена спільно урядом України, Світовим банком, Європейською комісією та ООН, зросла порівняно з 349 мільярдами доларів – про таку суму йшлося у звіті, оприлюдненому у вересні 2022 року
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За словами Дмитра Пєскова, «мирний план» Зеленського сторони не обговорювали
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Програма допоможе «профінансувати всі критичні видатки і зберегти макрофінансову стабільність», заявив прем’єр Шмигаль
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Sri Lanka has secured a $ 2.9 billion loan from the International Monetary Fund, raising hopes the funding will mark the beginning of economic revival in a country confronting its worst crisis in decades.  

The IMF approval Monday came about a year after the island nation of 22 million was plunged into turmoil as it grappled with crippling shortages of food, fuel and medicine, triggering massive street protests.    

Although the situation has improved marginally, the country still faces an uphill task in repairing its broken economy. The snaking lines for fuel have vanished, the hours-long daily power cuts have ended and severe shortages of cooking gas have eased.  But high inflation is still hurting millions of people and the government suspended repayment of its foreign debt as its foreign exchange reserves dipped to record lows.  

The approval of the IMF rescue package took longer than initially expected as Sri Lanka negotiated with its biggest creditor, China, to support the restructuring of its debt.

“Sri Lanka is no longer deemed bankrupt by the world,” Sri Lankan President Ranil Wickremesinghe said in a video statement. “The loan facility serves as an assurance from the international community that Sri Lanka has the capacity to restructure its debt and resume normal transactions.” 

The IMF will immediately disburse $333 million to Sri Lanka, with more funds to follow in the coming months. The president’s office said in a statement that the agreement will enable the country to access up to $7 billion altogether from the IMF and other international financial institutions.  

“The amount of the loan may not be large, but its significance lies in the IMF saying that it is OK to lend to Sri Lanka,” says Paikiasothy Saravanamuttu, Executive Director at the Center for Policy Alternatives in Colombo. “That opens the doors for other international lenders to come forward.” 

However, the road to recovery will not be easy — the IMF loan has been approved with conditions that will involve tightening public spending and rolling back some policies that led to the current crisis.  

The government has already raised income taxes and slashed electricity and fuel subsidies, fulfilling some of those conditions. But there are more stringent reforms that will have to be implemented in the months ahead.  

Analysts say that the government could face hostility from trade unions over plans to privatize several loss-making state-owned companies as part of the reform agenda. Earlier this month, the government’s decision to postpone local elections because of lack of funds triggered angry protests.  

The government also agreed to enact tough anti-corruption laws as it negotiated with the IMF, which has said that Colombo must rein in the corruption that has been partly blamed for the crisis.  

The IMF said Tuesday it is also assessing governance in Sri Lanka, making it the first Asian country facing scrutiny for corruption as part of a bailout program.  

“We emphasize the importance of anti-corruption and governance reforms as a central pillar of the program,” Peter Breuer, the IMF’s senior mission chief for Sri Lanka, told reporters Tuesday. “They are indispensable to ensure the hard-won gains from the reforms benefit the Sri Lankan people.” 

There are some hopeful signs that the economy is now on the right path. The crucial tourism industry that was devastated by the COVID-19 pandemic is recovering as visitors begin to return to the island country’s pristine tropical beaches.  

“Last year, I lost my job, and I was unemployed for almost nine months. It was a very bad period for me,” says tour guide Hasitha Vishwa, who is based in Kalutara, famed for its beaches. “But since November, I have again found work as tourists from countries like India, Russia and Britain return. So, things are a little better,” he said, expressing hope that the IMF loan is a signal that the worst is over the country. 

The economy of a country that just years ago was ranked as a middle- income country unraveled after being hit both by the COVID-19 pandemic and economic mismanagement blamed on the previous government led by former President Gotabaya Rajapaksa. He resigned last July after protestors stormed his residence.  

The protests ended after Wickremesinghe took a tough approach to the demonstrations but there is simmering anger in the country over the difficult times that lie ahead.  

“The protests now are over the higher taxes and electricity tariffs that ordinary people have to pay when they are already facing difficulties. There will be resentment over the conditions that the IMF loan involves,” according to analyst Saravanamuttu.  

The situation in Sri Lanka is still bleak, according to aid organizations. Half of the families in the country have been forced to reduce portions they feed their children, according to a survey by Save the Children released this month.
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