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Emerging Markets

South Africa hikes rates, Gabon issues $1bn bond, Nicaragua cancels $1.4bn debt, and Czech Republic GDP grows 6%

South Africa’s central bank has hiked interest rates by 50 bps to 11% after inflation hit a four and a half year high of 7.3% in October. The consumer price index has now missed its target range of 3-6% for the seventh consecutive month and is expected to increase to 7.8% in the first quarter of next year. Tito Mboweni, governor of South Africa’s central bank said: “The main risks to the inflation outlook emanate from food, petrol and electricity price prospects. International oil prices have continued to remain an upside risk factor.” The rate increase caused the rand to immediately strengthen against the dollar. (For coverage on how some analysts are calling for a more flexible monetary regime in South Africa, please click here)

Gabon has launched its debut offshore $1 billion bond, becoming only the second west African country to do so. The 10-year deal was priced at 8.2% and attracted $2.5 billion worth of orders from Europe and the US. The offer, priced on Wednesday, follows Ghana’s $750 million 8.5% 2017 bond in September, the first public Eurobond issued by a sub-Saharan African sovereign. Investor interest was generated by the country’s large oil reserves and political stability as well as the dwindling supply of offshore sovereign issues. The bond is rated BB-/BB- and will help pay off the country’s Paris Club debt. (For more analysis, please see our sister publication Euroweek)

Nicaragua has struck a deal with the World Bank and its commercial creditors to write off 95.5% of its longstanding $1.4 billion debt. The central American country will now have to pay back just $63 million of the original debt in an agreement settled under the Heavily Indebted Poor Countries (HIPC) initiative. Alberto Guevara, Nicaragua’s minister of finance, said: “This operation will provide a very significant level of debt relief to Nicaragua, contributing to the sustainability of our external debt.” The deal will ultimately improve the country’s credit standing and will allow private companies greater access to global credit markets.

The Czech economy grew 6% year-on-year in the third quarter, above market expectations of 5.8%, according to official figures released today. Strong household spending coupled with a 5.7% rise in fixed capital investment were the main proponents of the growth in the economy, which has been expanding consistently at over 6% since 2004. However, the OECD said yesterday that Czech growth would slow to around 4.6% in 2008, in line with the IMF’s November prediction of 4.5%. Meanwhile, the country’s current account deficit widened to €1.7 billion (3.5% of GDP) up from €1.6 billion (3.4% GDP) in the second quarter. The central bank said this was mainly due to dividend payouts from firms owned by foreign shareholders and a fall in foreign direct investment. Analysts say the biggest medium-term challenge for the government is the reduction of the fiscal deficit in order to re-energize the country’s EMU convergence programme, although a date for euro adoption is yet to be decided.