Colombia raised its reference rate by 25bps to 9.25%, in line with market expectations. The central bank stated that domestic demand was growing at a furious pace in Q1 at 11% year-on-year, and predicted that real GDP in 2007 is likely to exceed 6%. Central bank president Jose Dario Uribe also said that it will be “very difficult” to meet this year’s inflation target range of 3.5%-4.5%, following a rate of 6.04% in June.
The US Senate Finance Committee announced a new bill making it easier to pressurize countries that have a “misaligned” currency, such as China. The new bill, Currency Exchange Rate Oversight Reform Act of 2007, was approved by 20 to 1 at the Senate Finance Committee and removes the existing requirement for the Treasury to name a country as a "currency manipulator" before taking action. Instead, the department shall designate priority action if the country issuing that currency engages in large-scale FX intervention; accumulates excessive foreign assets; and/or interferes with the free flow of capital. After a review, anti-dumping duties and other measures could be imposed including remedial intervention in the international currency market. Analysts say that the bill is likely to be passed by both the Senate and the House this year, as a populist measure coinciding with the upcoming presidential nominations. This is likely to put a further strain on the trade relations between US and China (see IMF currency plan under fire).
Turkey’s central bank governor Durmus Yilmaz urged the government to reduce public expenditure, cautioning that a tight fiscal policy is necessary to meet the primary surplus target of 6.5% of GNP for 2007. The monetary authority also said in its inflation report that assuming measured policy rate cuts are taken from the beginning of Q4, it forecasts inflation of 5.1%-6.9% at the end of 2007 and 1.5%- 4.9% at the end of 2008. The majority consensus among analysts is that the central bank will resume a monetary easing cycle in October and cut the policy rate by 75bps in 2007 and by 275bps in 2008, but this schedule could be delayed by continued fiscal overshoot, political uncertainty, or a heavy emerging markets sell-off (see Funds poised for best-case Turkey election result).
A revision to Egypt’s Capital Markets Law will enable securities and investment companies to set up mutual funds. At present, only banks and insurance companies can enter the mutual fund market. The law is intended to diversify and deepen the domestic capital markets (see Uncertainty shrouds Egypt inflation outlook). The Capital Markets Authority has also revised its regulations to help speed up the process for companies seeking to list on the Egyptian stock exchange.
Serbia’s central bank kept the key policy rate unchanged at 9.5% but announced it would adopt a tighter monetary policy due to inflationary pressures, fuelled by the strong domestic demand driven by the rising salaries and expansionistic fiscal policies. Analysts caution that political risks may shroud the investment climate due to the protracted negotiations over the future of Kosovo (see Serbia governor pleads for political stability).