Emerging Policy-surprises all round

October 30, 2012

A cut was expected, but not there. Israel sliced rates to 2 percent on Monday, surprising even the central bank’s own economists, who forecast steady rates till the end of next year. India’s central bank, meanwhile, kept rates steady earlier today, even though the country’s government had been pushing for a trim.

Emerging economies continue to grapple over whether it’s better to tackle growth or to fight inflation. For the Reserve Bank of India, which left rates at 8 percent but chopped banks’ cash reserve ratios, an inflation rate of nearly 8 percent in September was enough to cause alarm.

A sop to the government though, which has called for a rate cut to boost flagging growth – the central bank said it might take the hatchet to rates early next year.

For Israel, the issue appeared to be the export-draining strength of the shekel, which has soared 7 percent against the dollar since the end of July, when European Central Bank chief Mario Draghi said he would do whatever it took to preserve the euro.

According to Citi emerging market strategist David Lubin:

It is possible that the Bank of Israel would like its rate to be as low as possible to discourage foreigners from developing an appetite for the shekel.

Hungary’s central bank also cut rates today, for the third month in succession, bringing them to 6.25 percent. The vote is expected to have been split, with doves pointing to weak growth expectations for next year, even though inflation hit four-year highs above 6 percent last month.

And if all this wasn’t enough excitement, several more emerging central banks announce rate decisions this week. On Thursday it’s the Czech central bank (rates seen unchanged at record low 0.25 percent), while on Friday it’s the turn of Romania (seen unchanged at 5.25 percent) and Uganda (some see 100 basis point cut from current 13 percent).


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