Daily Archives: January 21, 2011

Hungary’s central bank is set to lift the base rate by 25 basis points to 6 per cent next Monday – the third such rise in as many months. Economics is the main driver, but, as so often in Hungary right now, politics is also involved. According to a Reuters poll more than two-thirds of analysts expect a hike. Most arguments for predicting an increase are fairly orthodox – surprisingly high inflation of 4.7 per cent in December, rising wage trends, and the recent Polish rate increase.

But Nigel Rendell, emerging market strategist with RBC Capital Markets, points to another likely cause – prime minister Viktor Orban’s plans to reshuffle the rate-setting monetary council. “Yes, they’ve got to put the lid on inflation, but the most pressing issue is the expected change to the Monetary Council,” he says.

Under draft proposals put forward by Orban’s centre-right government, all four new members (of the seven-man council) to be appointed from March would be chosen by parliamentary committee, and therefore, observers believe, pro-government. “That means they’re likely to be dovish, and unlikely to vote for further rate increases. So the current council has to strike while the possibility is there,” argues Mr Rendell. Read more

Thailand, Indonesia and India have all made bullish noises of late, suggesting they may raise rates in the near future.

Indonesia’s central bank governor said today that it remained vigilant against rising inflationary pressures, which is good to know from a bank that has been keeping at least one eye firmly on growth. Consumer price inflation rose to 6.96 per cent in the year to December, against a 2011 target of 5 per cent +/- 1 per cent. The central bank has kept rates at their post-crisis low of 6.5 per cent to drive growth via commercial loans, Reuters reports. The IMF has called on the country to raise rates, which recently cut import duties on food to try to dampen price rises.

India is expected to raise rates next Tuesday, January 25. A “vast majority” of Read more

Turkey’s rate cut yesterday will be followed by another raise in reserve requirements in the coming days, continuing the central bank’s plan to discourage short-duration capital flows. Bloomberg news wire reports:

The Turkish central bank’s decision to reduce the benchmark interest rate was unanimous, Turalay Kenc, a member of the Monetary Policy Committee told Bloomberg HT television. Read more

In June last year, the Bank of New Zealand issued the country’s first covered bond – securities backed, for example, by mortgage payments. (So the bank, receiving loan payments, in turn issues debt, receiving cash for that and allowing them to lend more.) Seven months later, the central bank has already seen fit to limit issuance of these bonds to 10 per cent of a bank’s total assets.

The practice allows a bank to increase leverage. The popularity of this and similar leveraging techniques in the US and Europe has been blamed for difficulties faced during the credit crisis. Complex interdependencies are created by reselling debt, repackaging it or simply issuing new debt on the basis of cashflow from other debt. Read more