Russia’s central bank announced a 50 bps cut in its refinancing rate to 10.0%, which will take effect today. The real interest rate was about 2.7% last month, above the 100-200 bps preferred by the CBR. Analysts expect the CBR to reduce the rate further to assert its confidence that inflation will decline in the long-term, and to narrow the gap between the policy rate and market rates.
China’s ministry of finance has asked the National People’s Congress to issue special bonds to fund the FX market operations for its newly established state investment corporation. It is speculated that Ministry of Finance hopes to issue $200-250 billion worth of RMB-denominated special bonds. The capital raised will be sold to the central bank for FX currencies, and this will then help fund investments of the newly established investment agency. Analysts maintain this sale of hard currencies, although very small-scale at present, marks a major shift, as previously the central bank has intervened in the FX market to slow down RMB appreciation.
Philippines’s fiscal revenues increased by only 5% year-on-year in May. The 12-month rolling fiscal deficit to GDP ratio is creeping up and is projected at 1.5% by the end of the year, up from the government’s target and May’s figure of 1%. Analysts caution that the government needs to revive efforts to step up tax collection to ensure that budget targets are met, thereby maintaining creditworthiness.
Romania’s opposition is preparing motions against the government of Prime Minister Calin Tariceanu, despite the failure of the recent no-confidence vote by the Democrat Party (PD) of President Traian Basescu. Analysts expect that the motions will be endorsed by parliament, causing further political gridlock, but will not bring early elections. Meanwhile, the central bank has returned to full sterilization, draining the whole offer put forward by commercial banks in the auction for one-month funds at the sterilization rate of 7.25%.