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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="462" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107226778-1681808303292-gettyimages-1262999663-1006_18_fl191110063-820x462.jpeg" alt="" class="wp-image-424334" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107226778-1681808303292-gettyimages-1262999663-1006_18_fl191110063-820x462.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107226778-1681808303292-gettyimages-1262999663-1006_18_fl191110063-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107226778-1681808303292-gettyimages-1262999663-1006_18_fl191110063-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107226778-1681808303292-gettyimages-1262999663-1006_18_fl191110063-768x432.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107226778-1681808303292-gettyimages-1262999663-1006_18_fl191110063.jpeg 929w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">Chocolate bars on display. Orlando, Winter Park, Rocket Fizz Soda Pop &amp; Candy Shop, chocolate bar display, Milky Way and Snickers. (Photo by: Jeff Greenberg/Education Images/Universal Images Group via Getty Images)</figcaption></figure>



Prices for sugar spiked as rising demand was compounded by a deteriorating weather outlook — and analysts say there’s still room for prices to shoot higher.



Raw sugar futures in recent days rose to 24 cents a pound and reaching an 11-year high.



“Sugar fundamentals are quite bullish for the prices to remain elevated in the short to medium term,” said Girish Chhimwal, a sugar analyst at S&amp;P, citing weather risks plaguing top sugar producers.



Rising costs could be passed on to consumers in the form of pricier candy.



“The rising price of confectionary and sugar-based beverages will incorporate rising sugar values,” said John Stansfield, a senior sugar analyst at commodity data platform DNEXT.



Prices of processed foodstuff are rising globally, Stansfield added.



“In a bar of chocolate you have milk, cocoa powder etc. and these costs are also rising. Energy and labor costs to make such goods are also rising,” he said.



<h2 class="wp-block-heading" id="h-production-concerns">Production concerns</h2>



“In recent weeks, the Asian cane crushing season has started to wind down and we have seen large downward crop revisions in the key producing countries most notably India, Thailand, China and Pakistan,” said Stansfield.



India is the world’s second largest sugar producer after Brazil.



In early April, the All India Sugar Trade Association trimmed its sugar production estimates by nearly 3% for the crop year spanning October 2022 to September 2023. The association cited unseasonal rainfall in Maharashtra, which accounts for more than one third of the country’s sugar output.



Stansfield added that the lower production was compounded by a poor European beet crop resulting from reduced acreage and a severe summer drought, as well as demand continuing to recover from the Covid period.



About 80% of global sugar production comes from sugarcane, according to the International Sugar Organization, while 20% derived from beets.



<h2 class="wp-block-heading"><a></a>Extreme weather could ‘take prices much higher’</h2>



“Prices should trend towards staying elevated in the 21 to 24 cents per pound range,” S&amp;P’s Chhimwal forecasts.



While China could potentially draw upon state reserves to relieve the pressure in global markets, Chhimwal cautions there are many factors that could drive prices higher.



“However, the El Nino risk on Asian production outlook could far offset in the medium term and take prices much higher,” Chhimwal cautioned.



According to the National Oceanic and Atmospheric Administration, there is a 62% chance of El Niño conditions from May to June.



Depending on the Asian monsoon rainfall, the sugar market could potentially become “very volatile” and weather driven in the medium term, he added.



Rain in number one producer Brazil is also slowing the start of harvest in April.



The sugarcane harvest in Brazil’s south-central region — which accounts for 90% of the country’s production — runs from April to December and its yield would be a key gauge to monitor, said Fitch Solutions’ commodities analyst Matthew Biggin.



But ”[sugar] prices are so high right now that even if prices cool substantially when the Brazilian harvest hits the market, prices could still be considered elevated above historical levels,”&nbsp;he said.



Another factor pushing prices higher is OPEC’s recent surprise decision to slash oil output by around 1.16 million barrels per day. That has encouraged the diversion of sugarcane toward ethanol production and away from sugar supplies, Fitch Solutions wrote in a report dated April 13.



“The OPEC decision and the upturn in oil prices will likely keep prices elevated,” Biggin also pointed out.



The push towards increased biofuel mandates will also place a floor under prices over the longer term, Biggin said.



<h2 class="wp-block-heading"><a></a>Bitter pill for some</h2>



As with higher food prices, countries grappling with high levels of food insecurity will be hardest hit by sugar price spikes, said S&amp;P’s Chhimwal.



This will hit “particularly hard” in North African and Sub-Saharan African countries, where sugar consumption and import demand are high, he said.



“The average consumer is already seeing the impact of higher prices,” said DNEXT’s Stansfield.

107226778-1681808303292-gettyimages-1262999663-1006_18_fl191110063

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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107158938-1669814994706-GettyImages-1439241887-820x547.jpg" alt="" class="wp-image-424308" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107158938-1669814994706-GettyImages-1439241887-820x547.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107158938-1669814994706-GettyImages-1439241887-300x200.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107158938-1669814994706-GettyImages-1439241887-135x90.jpg 135w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107158938-1669814994706-GettyImages-1439241887-768x512.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107158938-1669814994706-GettyImages-1439241887-1536x1025.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107158938-1669814994706-GettyImages-1439241887-scaled.jpg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">ACCRA, Ghana &#8211; Nov. 5, 2022: Ghanaians march during the ‘Ku Me Preko’ demonstration to protest against the soaring cost of living, aggravated since the Russian invasion of Ukraine. Some expressed opposition to the government’s pursuit of IMF assistance. Ernest Ankomah/Getty Images</figcaption></figure>



Leaders of several global financial bodies warned that rising interest rates are increasing pressure on low-income developing countries, around 60% of which are now in or at high risk of debt distress.



Public debt burdens in developing countries have been exacerbated in recent years by back-to-back global crises, with Russia’s invasion of Ukraine coming on the heels of the Covid-19 pandemic, while many heavily-indebted nations are also dealing with idiosyncratic pressures from climate events or conflict.



Major central banks around the world have tightened monetary policy aggressively over the past year in order to rein in soaring inflation. A lot of the debt accrued by low-income countries is coming due over the next couple of years, however, and rising interest rates mean these countries will find it increasingly difficult to meet their repayments.



The International Monetary Fund and the World Bank have established a host of relief measures in recent years, including the IMF-World Bank Debt Sustainability Framework, designed to guide the borrowing of low-income countries in a way that ensures stability in public finances.



Meanwhile the G-20 Common Framework, an initiative endorsed by the Paris Club — the group of officials from major lending countries tasked with finding solutions for debtor countries — was established in late 2020 to offer additional support in the form of grants to countries with unsustainable debt.



Ghana in January became the fourth country to seek debt treatment under the Common Framework, alongside Chad, Ethiopia and Zambia.



Yet the implementation, in practical terms, has not been smooth. Zambia, which became the first African country to default in 2020 after the onset of the pandemic, complained earlier this month that it was being “punished” in the debt restructuring process because its two main creditors, international bondholders and China, had failed to reach an agreement.



The IMF said earlier this month that the next instalment of Zambia’s $1.3 billion rescue loan was contingent on a debt restructuring agreement being reached.



Despite the provisions already in place, World Bank Senior Managing Director Axel van Trotsenburg told CNBC last week that with interest rates still rising and global growth slowing, more collaborative efforts from international bodies and developed economies would be needed.



“I think we should be worried. World economic growth is relatively weak and that has its implications, the increased interest rate means that a lot of capital has flowed out of developing countries — this is badly needed for investment, so many of the developing countries are under stress,” he told CNBC’s Joumanna Bercetche at the IMF Spring Meetings in Washington, D.C.



High interest rates in developed nations like the U.S. lead many investors to flock back to dollar-denominated assets, curbing their foreign investments.



“Particularly the poorest countries are bearing the brunt of it because they have in the first place a hard time to attract capital, and they have also to deal with other crises from conflict to climate, so this is a tough time,” van Trotsenburg said.



As such, van Trotsenburg called for “renewed solidarity with developing countries” from international bodies and major economies not just in the form of words, but with increased resources.



This was echoed by Makhtar Diop, managing director of the International Finance Corporation (IFC), a member of the World Bank Group and the largest global development institution devoted to the private sector in developing nations.



Addressing concerns about the impact of interest rate increases on financial stability and debt sustainability in the developing world, Diop said debt distress was “one of the main risks” that the global economy faces in the short term, especially as much of the at-risk debt is coming to maturity imminently.



“That’s actually something that we raised a decade ago when we saw a rapid rise in the indebtedness levels of low-income countries. We warned them by saying to them that the conditions at which this debt might be paid and refinanced in the future might be worse conditions, and will affect the sustainability of their economies,” Diop explained.



“A lot of bullet payments, as we call them, occurred eight years after the loans were made, and we need to address that situation.”



A bullet repayment refers to an entire outstanding loan amount being met with a single lump sum payment, usually at maturity.



Diop said establishing a firm path toward economic growth in developing economies would enable them to generate investment and stand a better chance of meeting future loan obligations.



He also suggested that institutions such as the Paris Club should include some of the borrowers in question, rather than just the world’s biggest lenders, in order to bring debtors and creditors into the same conversation and reach more workable solutions.



A third problem that must be addressed in order to return distressed countries to debt sustainability is the “currency mismatch,” he added.



“A lot of the debt was in dollar when countries are generating their income in local currency, so deepening the capital markets will be very important for countries to be able to offset some of this long-term risk,” Diop said.



The IMF last week forecast that global growth will be around 3% five years from now — the lowest medium-term forecast in the D.C.-based organization’s World Economic Outlook for more than 30 years.



In the short term, the Fund expects global growth of 2.8% this year and 3% in 2024, slightly below its estimates published in January.



South African Finance Minister Enoch Godongwana also told CNBC that even as the most industrialized, technologically sophisticated and diversified economy in Africa, his country’s outsized exposure to global economic cycles was a potential concern.



“By way of example, if we look at the global financial crisis of 2007/2008, we were one of the heavily affected countries on the African continent, and lost one to 2 million jobs,” Godongwana said.



“Our connection to the global economy is deep, and therefore any changes in the global economy are likely to be massive.”

107158938-1669814994706-GettyImages-1439241887

‘We should be worried’: Finance leaders warn rising interest rates are squeezing low-income countries

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107225913-1681631865209-gettyimages-1372863580-284064final-820x547.jpeg" alt="" class="wp-image-424304" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107225913-1681631865209-gettyimages-1372863580-284064final-820x547.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107225913-1681631865209-gettyimages-1372863580-284064final-300x200.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107225913-1681631865209-gettyimages-1372863580-284064final-135x90.jpeg 135w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107225913-1681631865209-gettyimages-1372863580-284064final-768x512.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107225913-1681631865209-gettyimages-1372863580-284064final-1536x1024.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107225913-1681631865209-gettyimages-1372863580-284064final-scaled.jpeg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">Bowl of white rice at Bamboo Sushi restaurant in San Ramon, California, January 23, 2022. Gado | Archive Photos | Getty Images</figcaption></figure>



From China to the U.S. to the European Union, rice production is falling and driving up prices for more than 3.5 billion people across the globe, particularly in Asia-Pacific – which consumes 90% of the world’s rice.



The global rice market is set to log its largest shortfall in two decades in 2023, according to Fitch Solutions.



And a deficit of this magnitude for one of the world’s most cultivated grains will hurt major importers, analysts told CNBC.



“At the global level, the most evident impact of the global rice deficit has been, and still is, decade-high rice prices,” Fitch Solutions’ commodities analyst Charles Hart said.



Rice prices are expected to remain notched around current highs until 2024, stated a report by Fitch Solutions Country Risk &amp; Industry Research dated April 4.



The price of rice averaged $17.30 per cwt through 2023 year-to-date, and will only ease to $14.50 per cwt in 2024, according to the report. Cwt is a unit of measurement for certain commodities such as rice.



“Given that rice is the staple food commodity across multiple markets in Asia, prices are a major determinant of food price inflation and food security, particularly for the poorest households,” Hart said.



The global shortfall for 2022/2023 would come in at 8.7 million tonnes, the report forecast.



That would mark the largest global rice deficit since 2003/2004, when the global rice markets generated a deficit of 18.6 million tonnes, said Hart.



<h2 class="wp-block-heading" id="h-strained-rice-supplies"><a></a>Strained rice supplies</h2>



There’s a short supply of rice as a result of the ongoing war in Ukraine, as well as bad weather in rice-producing economies like China and Pakistan.



In the second half of last year, swaths of farmland in the world’s largest rice producer China were plagued by heavy summer monsoon rains and floods. 



The accumulated rainfall in the country’s Guangxi and Guangdong province, China’s major hubs of rice production, was the second highest in at least 20 years, according to agriculture analytics company Gro Intelligence.



Similarly, Pakistan — which represents 7.6% of global rice trade — saw annual production plunge 31% year-on-year due to severe flooding last year, said the U.S. Department of Agriculture (USDA), labeling the impact as “even worse than initially expected.” 



The shortfall is partly due to result of “an annual deterioration in the Mainland Chinese harvest caused by intense heat and drought as well as the impact of severe flooding in Pakistan,” Hart pointed out.



Rice is a vulnerable crop, and has the highest probability of simultaneous crop loss during an El Nino event, according to a scientific study.



In addition to tighter supply challenges, rice became an increasingly attractive alternative following the surge in price of other major grains since Russia’s invasion of Ukraine in February 2022, Hart added.&nbsp;The resulting rice substitution has driven up demand.



<h2 class="wp-block-heading"><a></a>Whose rice bowls will be affected?</h2>



Lower year-on-year rice production in other countries like the U.S. and EU have also contributed to the deficit, said Oscar Tjakra, senior analyst at global food and agriculture bank Rabobank.



“The global rice production deficit situation will increase the cost of importing rice for major rice importers such as Indonesia, Philippines, Malaysia and African countries in 2023,” said Tjakra.



Many countries will also be forced to draw down their domestic stockpiles, said Kelly Goughary, senior research analyst at Gro Intelligence. She said countries most affected by the deficit would be those already suffering from high domestic food price inflation such as Pakistan, Turkey, Syria and some African countries.



“The global rice export market, which is typically tighter than that of the other major grains &#8230; has been affected by India’s export restriction,” said Fitch Solutions’ Hart.



India banned exports of broken rice in September, a move Hart said has been a “major price driver” for rice. 



<h2 class="wp-block-heading"><a></a>Surplus in the horizon</h2>



However, the shortage may soon be a thing of the past.



Fitch Solutions estimates that the global rice market will return to “an almost balanced position in 2023/24.”



That could lead to rice futures falling in year-on-year terms to below their 2022 level, but remain elevated at “more than one third above their pre-Covid (2015-2019) mean value, in part as inventories are replenished after a period of extensive drawdown.”



“We believe that the rice market will return to surplus in 2024/25 and then continue to loosen through the medium term.”



Fitch further projects that the prices of rice could drop almost 10% to $15.50 per hundredweight in 2024.



“It is our view that global rice production will stage a solid rebound in 2023/24, expecting total output to rise by 2.5% year on year,” Fitch’s report forecast, hinging on India being a “principal engine” of global rice output over the next five years. 



However, rice production remains at the mercy of weather conditions.



While India’s Meteorological Department expects the country to receive “normal” monsoon rainfall, forecasts for intense heat and heat waves through the second and third quarters of 2023 continue to pose a threat to India’s wheat harvest, the report cautioned.



Other countries may not be spared either.



“China is the largest rice and wheat producer in the world and is currently experiencing the highest level of drought in its rice growing regions in over two decades,” said Goughary.



Major European rice-growing countries like France, Germany and the UK have also been afflicted with the highest level of drought in 20 years, she added.

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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="458" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107074597-1655103399286-gettyimages-1241039329-porzycki-bitcoinp220601_npP5u-820x458.jpeg" alt="" class="wp-image-424278" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107074597-1655103399286-gettyimages-1241039329-porzycki-bitcoinp220601_npP5u-820x458.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107074597-1655103399286-gettyimages-1241039329-porzycki-bitcoinp220601_npP5u-300x168.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107074597-1655103399286-gettyimages-1241039329-porzycki-bitcoinp220601_npP5u-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107074597-1655103399286-gettyimages-1241039329-porzycki-bitcoinp220601_npP5u-768x429.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107074597-1655103399286-gettyimages-1241039329-porzycki-bitcoinp220601_npP5u-1536x858.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107074597-1655103399286-gettyimages-1241039329-porzycki-bitcoinp220601_npP5u-scaled.jpeg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">Standard Chartered predicts that bitcoin could fall to $5,000 in 2023 as part of their research on potential market surprises next year. Nurphoto | Getty Images</figcaption></figure>



Cryptocurrencies fell on Monday as investors put excitement from Ethereum’s “Shapella” upgrade behind them and refocused on upcoming bank earnings and recession concerns.



Bitcoin fell 3% to $29,515.35, according to Coin Metrics, falling below the key $30,000 it hit last week for the first time since June. Meanwhile, ether was lower by 2.8% but maintained the $2,000 it broke through last week.



Crypto is coming off a winning week in which prices were boosted by optimism around Ethereum’s latest tech upgrade, dubbed “Shapella” (also known as “Shanghai”). The update is meant to bring greater liquidity to the network by allowing “locked up” ether to be withdrawn and ultimately draw in more institutional interest in the long term. Bitcoin and ether advanced 8% and 12%, respectively, for the week.



This week, it wouldn’t be surprising to see a small correction in prices, according to Yuya Hasegawa, crypto market analyst at Japanese bitcoin exchange Bitbank, and there could be some selling pressure as some investors may want to take profits from the previous week.



While crypto was rallying, “Friday’s U.S. stock market showed unstable movements as stronger-than-expected consumer sentiment and Fed’s Waller’s speech strengthened the possibility of another rate hike in May,” Hasegawa said. “Nevertheless, the Fed Funds futures market has already priced in more than 80% chance of a 25bp hike in May, so pressures from macro factors on the price of bitcoin is expected to be limited.”



Crypto investors are watching bank earnings this week for more insight about the health of the sector and possibility of a coming recession. Several Fed officials are scheduled to speak this week too.



“We haven’t seen crypto perform in a high-rate, slowing growth environment until now,” said Callie Cox, analyst at investing company eToro. “It’s anyone’s guess how crypto acts during a recession.”



For this week, any downside potential “should not be severe” or keep bitcoin from continuing on its uptrend, Hasegawa said.

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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="460" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107217230-1680111851945-gettyimages-1248376685-AFP_33BF9YC-820x460.jpeg" alt="" class="wp-image-424257" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107217230-1680111851945-gettyimages-1248376685-AFP_33BF9YC-820x460.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107217230-1680111851945-gettyimages-1248376685-AFP_33BF9YC-300x168.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107217230-1680111851945-gettyimages-1248376685-AFP_33BF9YC-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107217230-1680111851945-gettyimages-1248376685-AFP_33BF9YC-768x431.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107217230-1680111851945-gettyimages-1248376685-AFP_33BF9YC-1536x861.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107217230-1680111851945-gettyimages-1248376685-AFP_33BF9YC-scaled.jpeg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">Photo: via CNBC</figcaption></figure>



The European Central Bank must “carry on and act consistently” with interest rate hikes as it continues its efforts to tackle high inflation, policymaker Olli Rehn said Friday.



Rehn, who is a member of the ECB’s Governing Council and governor of the Bank of Finland, said that the central bank’s next rate decision will be “data dependent,” particularly as it pertains to stubbornly high core inflation.



Euro zone core inflation — which excludes volatile energy, food, alcohol and tobacco prices — reached an all-time record of 5.7% in March, up from 5.6% in February. Headline inflation, meanwhile, fell significantly to an annual rate of 6.9% last month.



“Inflation is still by far too high, and especially I’m concerned about core inflation, underlying inflation,” Rehn told CNBC’s Joumanna Bercetche at the International Monetary Fund’s spring meeting in Washington, D.C.



The ECB has raised interest rates by 50 basis points at its last six consecutive policy meetings. However, Rehn said the moves have yet to have a significant impact.



“In my view, it is important that we carry on, and act consistently, but we have to calibrate our decision on the basis of an approach based on data dependency,” he added.



“We have been reaching restrictive territory and it’s important that we don’t relax prematurely.”



Asked whether Europe was poised for a period in which interest rates were held higher for longer, Rehn replied, “I would concur with that.”



He added, “Once we reach the peak policy rate, perhaps over the summer … then we have to keep the peak policy rate at a stable level for a sufficient period of time to see that core inflation is genuinely in a sustained decline.”



Rehn’s comments come as a number of ECB policymakers indicated this week that they may be reconsidering the path of interest rate hikes in the wake of last month’s banking turmoil.



The ECB hiked rates by 50 basis points in mid-March at the height of the banking stress, despite some calls for the central bank to pause.



Yet, several ECB Governing Council members this week noted the risk of a knock-on economic impact of continued hikes.



“Quite definitely what we experienced with the bank crisis in the U.S. and with Switzerland, this led to changes in outlook and if the outlook changes, we have to change our views,” said Austrian National Bank Governor Robert Holzmann.



Earlier Friday, Boris Vujčić, governor of the Croatian National Bank, reiterated that the bank’s upcoming decision would be “data dependent.” However, he suggested that a 25 basis point hike could be in the cards at forthcoming meetings.



“It will be, as we say, data-dependent as to what we decide to do in May, whether we stick with the 50 basis points or we move down to the 25 basis points,” Vujčić said.



— CNBC’s Elliot Smith contributed to this report.

107217230-1680111851945-gettyimages-1248376685-AFP_33BF9YC

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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="461" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107213501-1679511870376-gettyimages-1249066464-AFP_33BV348-820x461.jpeg" alt="" class="wp-image-424201" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107213501-1679511870376-gettyimages-1249066464-AFP_33BV348-820x461.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107213501-1679511870376-gettyimages-1249066464-AFP_33BV348-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107213501-1679511870376-gettyimages-1249066464-AFP_33BV348-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107213501-1679511870376-gettyimages-1249066464-AFP_33BV348-768x432.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107213501-1679511870376-gettyimages-1249066464-AFP_33BV348-1536x864.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107213501-1679511870376-gettyimages-1249066464-AFP_33BV348.jpeg 1600w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">Photo: via CNBC</figcaption></figure>



WASHINGTON – Fallout from the U.S. banking crisis is likely to tilt the economy into recession later this year, according to Federal Reserve documents released Wednesday.



Minutes from the March meeting of the Federal Open Market Committee included a presentation from staff members on potential repercussions from the failure of Silicon Valley Bank and other tumult in the financial sector that began in early March.



Though Vice Chair for Supervision Michael Barr said the banking sector “is sound and resilient,” staff economists said the economy will take a hit.



“Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years,” the meeting summary said.



Projections following the meeting indicated that Fed officials expect gross domestic product growth of just 0.4% for all of 2023. With the Atlanta Fed tracking a first-quarter gain around 2.2%, that would indicate a pullback later in the year.



That crisis had caused some speculation that the Fed might hold the line on rates, but officials stressed that more needed to be done to tame inflation.



FOMC officials ultimately voted to increase the benchmark borrowing rate by 0.25 percentage point, the ninth increase over the past year. That brought the fed funds rate to a target range of 4.75%-5%, its highest level since late 2007.



The rate hike came less than two weeks after Silicon Valley Bank, at the time the 17th largest institution in the U.S., collapsed following a run on deposits. The failure of SVB and two others spurred the Fed to create emergency lending facilities to make sure banks could continue operations.



Since the meeting, inflation data has been mostly cooperative with the Fed’s goals. Officials said at the meeting that they see prices falling further.



“Reflecting the effects of less projected tightness in product and labor markets, core inflation was forecast to slow sharply next year,” the minutes said.



But concern over broader economic conditions remained high, particularly in light of the banking problems. Following the collapse of SVB and the other institutions, Fed officials opened a new borrowing facility for banks and eased conditions for emergency loans at the discount window.



The minutes noted that the programs helped get the industry through its troubles, but officials said they expect lending to tighten and credit conditions to deteriorate. “Even with the actions, participants recognized that there was significant uncertainty as to how those conditions would evolve,” the minutes said.



<h2 class="wp-block-heading" id="h-half-point-hike-if-not-for-crisis"><a></a>Half-point hike if not for crisis?</h2>



Several policymakers questioned whether to hold rates steady as they watched to see how the crisis unfolded. However, they relented and agreed to vote for another rate hike “because of elevated inflation, the strength of the recent economic data, and their commitment to bring inflation down to the Committee’s 2 percent longer-run goal.”



In fact, the minutes noted that some members were leaning toward a half-point rate rise prior to the banking problems. Officials said inflation is “much too high” though they stressed that incoming data and the impact of the hikes will have to be considered when formulating policy ahead. “Several participants emphasized the need to retain flexibility and optionality in determining the appropriate stance of monetary policy given the highly uncertain economic outlook,” the minutes said. Inflation data has been generally cooperative with the Fed’s aims. The personal consumption expenditures price index, which is the inflation gauge policymakers watch the most, increased just 0.3% in February and was up 4.6% on an annual basis. The monthly gain was less than expected. Earlier Wednesday, the consumer price index showed a rise of just 0.1% in March and decelerated to a 5% annual pace, the latter figure down a full percentage point from February. However, that headline CPI reading was held back mostly by tame food and energy prices, and a boost in shelter costs drove core inflation higher by 0.4% for the month and 5.6% from a year ago, slightly above where it was in February. The Fed expects housing inflation to slow through the year. There was some bad news on the inflation front: A monthly survey from the New York Fed showed that inflation expectations over the next year increased half a percentage point to 4.75% in March.



Markets as of Wednesday afternoon were assigning about a 72% chance of one more quarter percentage point rate hike in May before a policy pivot where the Fed cuts before the end of the year, according to CME Group data. Though the FOMC approved an increase in March, it did alter language in the post-meeting statement. Where previous statements referred to the need for “ongoing increases,” the committee changed the phrasing to indicate that more hikes “may be appropriate.”

107213501-1679511870376-gettyimages-1249066464-AFP_33BV348

Fed expects banking crisis to cause a recession this year, minutes show

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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107223050-1681209527842-gettyimages-911964384-set04375-29january2018kw0061-820x547.jpeg" alt="" class="wp-image-424188" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107223050-1681209527842-gettyimages-911964384-set04375-29january2018kw0061-820x547.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107223050-1681209527842-gettyimages-911964384-set04375-29january2018kw0061-300x200.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107223050-1681209527842-gettyimages-911964384-set04375-29january2018kw0061-135x90.jpeg 135w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107223050-1681209527842-gettyimages-911964384-set04375-29january2018kw0061-768x513.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107223050-1681209527842-gettyimages-911964384-set04375-29january2018kw0061-1536x1025.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2023/04/107223050-1681209527842-gettyimages-911964384-set04375-29january2018kw0061-scaled.jpeg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">The bitcoin halving is an event that happens roughly every four years where rewards to miners are cut in halve, effectively limiting supply of the token. S3studio | Getty Images</figcaption></figure>



Bitcoin is nearly a year away from a key technical event — which might be the catalyst for a prolonged climb in the cryptocurrency’s value.



In April or May 2024, bitcoin is expected to undergo its next so-called “halving,” though the exact date is not yet known.



Bitcoin has been rising in the past few weeks in anticipation of the halving, as a potential U.S. Federal Reserve interest rate cut contends with the prospect of sluggish growth and tightening credit conditions resulting from woes in the banking sector.



One bitcoin was worth roughly $30,000 as of Wednesday morning, according to data from CoinGecko. The world’s largest cryptocurrency is up by more than 80% since the start of the year.



Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, said that the bitcoin jump above $30,000 at a time of bank failures and economic uncertainty suggests the cyclical “bottom” for bitcoin is forming.



“This tends to happen a year or so prior to the Bitcoin’s halving event, which is slated next for around April 2024,” Ayyar told CNBC via email.



<h2 class="wp-block-heading" id="h-what-is-the-bitcoin-halving"><a></a>What is the bitcoin halving?</h2>



Bitcoin halvings take place roughly every four years, or every time another 210,000 “blocks” are added to the blockchain. The event cuts the rewards to bitcoin miners — volunteers running specialized equipment to validate transactions on the network and mint new tokens — by 50%. The aim is to reduce the number of new bitcoin unit released into the market.



Currently, bitcoin miners receive 6.25 bitcoin for each block they successfully mine. This means their computer had the right amount of computing power needed to solve the cryptographic puzzles that secure the bitcoin network and prevent it from being compromised by malicious actors.



Once the next bitcoin halving occurs, this reward will be reduced to 3.125 bitcoin.



Backers of the cryptocurrency say this can help push up the price by enhancing bitcoin scarcity.



The maximum number of bitcoins that will ever exist in circulation is capped at 21 million. This is ensured by the halving mechanism, whereby rewards for mining bitcoin will eventually be slashed to $0.



Before the last halving, which took place on May 11, 2020, the price of bitcoin increased by 19% in the preceding 12 months, from $7,191.36 to $8,568.88, according to figures from CCData.



During the halving before that — which occurred on Jul. 9, 2016 — bitcoin rallied 142% compared with the 12 months prior, moving from $269.14 to $651.83.



The first ever halving of Nov. 28, 2012 saw the price of bitcoin balloon by 384% to $12.35 from $2.55, CCData’s figures show.



“Analysing historical Bitcoin halving patterns, it appears that investors often accumulate Bitcoin in the run-up to the halving event, although the exact timing and extent of returns post-halving can differ,” Jamie Sly, analyst at CryptoCompare, told CNBC.



“The accumulation period from the market bottom after the breakout to the halving date has historically spanned at least 500 days.”



Sly added: “This would mean, if we were to assume that the market bottom for this cycle was in November last year (when Bitcoin hit a yearly low of $15,760), then we are only 142 days into the current cycle. This would correlate with the next expected Bitcoin halving date, which is another 378 days ahead.”



<h2 class="wp-block-heading"><a></a>Bitcoin’s post-halving gains</h2>



The bitcoin price tends to spike even higher, in the months that follow halving.



After the halving of May 11, 2020, the cryptocurrency rallied 688.31% in the following 546 days, reaching a then record high of $67,549.14 on Nov. 8, 2021, according to CCData.



The halving before that, which took place on Jul. 9, 2016, saw bitcoin skyrocket 2,824% to a then all-time high of $19,065.71 by mid-December 2017.



Bitcoin had a torrid 2022, defined by the collapses of major companies and projects, from stablecoin terraUSD to crypto exchange FTX.



Rising inflation led to higher interest rates in the U.S. and in other major economies, which in turn caused investors to flee bitcoin and other risky assets.



That has seen prices of several top digital currencies slump sharply from their all-time highs.



Despite its recent ascent to $30,000, bitcoin is still down more than 50% from the highs of November 2021.

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