Turkey’s central bank left the overnight borrowing rate unchanged at 15.25%, in line with market expectations. This move halts the six-month monetary easing cycle that has seen rates cut by 225bp. The downside risks to growth may support the bank’s disinflation mission though food price pressures remain. Analysts say the market is currently not pricing in any further rate cuts but if easing resumes in the last quarter of the year, there is value in the long-end of local yields.
China’s central bank hiked commercial bank reserve requirements by 50bp to 15.5%, the fifteenth successive tightening measure in two years. China is battling surging inflation and rampant money supply that could expose Asia’s largest economy to a hard landing this year.
In addition, to ward off a possible meltdown in China’s equity market, the government announced this week it will provide tax relief to domestic mutual funds and stepped up exhortations to companies to refrain from new listings. The Shanghai composite index has shed 27.7% year-to-date, but stocks are nevertheless up 250% from the end-2005, leaving open the possibility of a much larger correction this year.
Thailand’s new democratic administration approved its 2009 budget setting a headline deficit of THB 249.5 billion (2.5% of GDP). But this also includes THB 64 billion in loan repayments and THB 31.9 billion for reserve funds, leaving an actual deficit of 1.5% of GDP in 2009. However, observers say the government may still ramp up social spending and a weak tax base combined with relatively poor business confidence could expose the government to a financing shortfall.
Indian inflation jumped to a ten-month high at the beginning of March with wholesale prices rising 5.92%, faster than the previous week’s 5.11%. The monetary authority has hiked interest rates nine times since October 2004 in an effort to reduce bank lending and to fight inflation.