Hungary’s central bank left interest rates on hold at 7.50%, consistent with market expectations. The bank had considered a 25bp hike to prop up the depreciating forint and to fight inflation, which stood at 7.2% last month. But depressed Hungarian and euro-area growth during the current global financial turmoil may spark a monetary loosening cycle later this year, observers say.
China’s Banking Regulatory Commission (CBRC) announced measures to oversee new bank lending amid concerns that bad loans and poor risk management continue to blight the banking system. CBRC will issue directives to stem illegal usage of bank loans for stock and property market activities. These credit-tightening measures follow this month’s announcement by the central bank to cap new loan issuance at RMB 3.63 trillion this year, the same as 2007.
Meanwhile, figures released this week show that Chinese growth has moderated slightly to 11.2% in the fourth quarter of 2007 from 11.5% in the previous period. Analysts say these figures suggest the government’s credit tightening measures are proving effective.
Brazil left interest rates unchanged at 11.25% - a widely expected move. But the central bank suggested that inflationary pressures might spark a monetary tightening cycle in March or April this year, the first hike since May 2005.
Ukraine will rely purely on domestic borrowing in the near term, the country’s finance minister, Viktor Pynzenyk, has confirmed. Unless inflation is tamed, the country will shun external borrowing, he said.
The target for foreign exchange borrowing this year is $1.8 billion with the country’s first Eurobond issue in June. Pynzenyk also said the finance ministry would hold T-bill auctions every week in the first quarter of the year. Analysts say with high inflation and downward pressure on the currency, interest rates will have to rise to sustain domestic borrowing this year.
Key Hong Kong banks have slashed their prime interest rates following the 75bp cut by the Federal Reserve and equivalent cut by the Hong Kong central bank this year. HSBC, Bank of China and Hang Seng Bank have lowered their rate to 6.00% from 6.75%, while Bank of East Asia and Standard Chartered Bank have lowered their rates to 6.25% from 7.00%. Analysts say this move will make asset investments more attractive. However, investor sentiment remains fragile following the sharp correction on the Hong Kong stock market this month.
Turkey’s central bank governor Durmus Yilmaz said he would not follow the Fed’s rate cut due to inflation concerns. He said only a tight mix of monetary and fiscal policies could ensure Turkey “rides out the current problems” in global markets. He also conceded that emerging markets have by no means decoupled from the US.