The two-week interbank lending rate in euros has dropped by a record 45 bps to 4.45% today, after the European Central Bank (ECB) offered $500 billion to commercial banks at a discounted rate of 4.21%. The ECB is frustrated that its fight against illiquidity in Western money-markets is not being won, with the interbank rate still 45 bps above the ECB benchmark interest rate. It previously intervened on August 9, boosting cash for overnight loans only. Yesterday, the Federal Reserve offered $20 billion in one-month loans and the Bank of England is to offer $20 billion in three-month loans today. But the lack of confidence of commercial banks to lend to each other, and their growing capital needs to maintain adequacy ratios while bringing troubled structured investment vehicles (SIVs) on balance sheet, suggest financial market turbulence is set to continue.
The World Bank has claimed China’s economy is 40% smaller than previously estimated on a “purchasing power parity” (PPP) basis. The policy-lender has carried out a survey to measure the relative size of the world’s economies using the PPP method that removes the effect of exchange rates. The survey values China’s economy at $5.33 trillion, the world’s second biggest economy after the US. But average incomes in the Asian nation are only 9.8% of its Western rival.
Ukraine’s parliament has finally elected pro-Western ex-premier Yulia Timoshenko as the new prime minister. She won a majority in the 450-member parliament by just two votes, which means that pro-Russian former PM Viktor Yanukovych is in a strong position to resist reforms and threaten more of the policy paralysis that has dogged the nation since 2004’s ‘Orange Revolution’. Timoshenko will seek to reorient the country away from Moscow, pushing for membership of NATO and WTO as well as privatization and energy security. (For an interview with a key Timoshenko ally pledging to kick out a controversial Russian-backed gas company, please click here)
Turkey has sent 700 soldiers into northern Iraq to root out Kurdish separatists that have carried out cross-border attacks. Turkey accuses Iraq and the US of failing to stop the Kurdistan Workers' Party (PKK) using northern Iraq as a military base. Despite these political risks, sell-side analysts still recommend investors to step up their exposure to Turkish assets after the strong performance of the country’s exchange rate and equities this year. This intervention may further complicate relations between Iraq’s central government and the Kurdish authorities after their disagreement over a proposed national oil law. (For coverage, please click here)
Ghana Telecom, the largest fixed line and mobile operator in the country, has placed a $200 million note maturing in 2012, with a coupon of 8.5%. This is Ghana’s first international corporate bond, and the first sub-Saharan cross-border corporate issue outside South Africa and Nigeria. The issue was managed by two UK-based specialist brokerages, Iroko Securities and Exotix, and will be entirely used to refinance maturing short-term paper. (For a guest opinion on African corporate bond issues by the chief economist of Exotix, please click here)