In a move consistent with market expectations, Colombia’s central bank raised its reference rate by 25 bps to 9%. The bank’s communiqué was hawkish, noting inflationary pressures and surging domestic demand. The bank also reiterated its medium-term inflation target of 3%, against the 6.2% annual rate recorded in May. Analysts maintain that a further rate hike in 2H is likely. The finance ministry also announced that it predicts a budget deficit of 3.2% of GDP in 2008, down from the expected 3.5%.
In what could be a sign of further sterilization operations, Russia’s central bank issued RUB 220.7bn ($8.5 bn) of its OBR bills, with an average yield of 4.61% and a 13 December 2007 buyback. This is the central bank’s largest placement and was largely bought up by Sberbank. The CB is trying to curb inflation caused by FX reserve accumulation and the inflows from recent hard currency share issues by VTB and Sberbank.
Taiwan’s legislature approved the delayed 2007 budget, just before the special extension session to clear the backlog of bills ended. The budget included a 25% increase in military spending. This is a rare instance of bipartisan cooperation as policy gridlock has dogged the current administration. With elections planned for Q1 2008, analysts expect that the gridlock is set to continue in the coming months.
Palestinian president Mahmoud Abbas has sworn in a new emergency government which excludes Hamas, who have seized control of Gaza. He also issued decrees that allow the PM to rule without parliamentary approval and outlaw Hamas’s armed forces. Israel said the economic embargo could be lifted, releasing tax money and easing travel restrictions in the West bank.