Nigeria’s central bank cut the monetary policy rate (MPR) 200bps from 10% to 8% and to narrow the +/- 3% corridor to +/-2.5%, reducing the deposit rate by 150bps to 5.5%. The 200 bps cut was more aggressive than market expectations due to a favorable inflationary environment (inflation was 4.2% year on year in April). But markets expect inflation to pick up between Q3-4 this year due to the high naira liquidity in the banking system, suggesting the MPC is unlikely to cut the policy rate again this year.
Reports that a large number of Turkish troops had entered Northern Iraq yesterday were proved incorrect. But the recent deployment of soldiers into southeastern Turkey, bomb blast in Ankara and growing agreement between the Turkish military and the government over how to deal with the PKK, suggests a cross-border operation is a growing possibility. Governor Yilmaz also expressed optimism that CPI will fall below 8% in the summer and reach the central bank's 4% target by mid-2008.
The Egyption government plans USD 877.4mn local currency bond. Ten-year bonds worth EGP 5bn (USD 877.4mn) will be issued internationally in July 2008, with settlement in dollars as the Egyptian pound does not have Euroclear status. Minister of Finance Youssef Boutros Ghali said the bonds will help increase ties between the Egyptian capital market and the international capital market, and the tapping of international markets for borrowing in Egyptian pounds will help reduce public debt servicing costs. The Egyptian Prime Minister, Ahmed Mohamed Nazif, said that he has a plan to reduce inflation to 8% and then 6% over the next couple of years. Inflation declined to 10% from 12% in March.
The IMF has given a strong warning to Asian counters that asset bubbles threaten the region’s economies. Asia and Pacific Director, David Burton cautioned that increase in capital inflows could cause unwanted loanable funds, leading to asset price bubbles. He also suggested that capital inflows were no panacea. He also pointed out that export growth in the medium and long term could only be sustained by domestic consumption.