Central banks in Europe
and North America have clubbed together in an unprecedented
move to increase short-term lending reserves and lessen the
impact of the credit crunch. The European Central
Bank, the Federal Reserve and central banks from the UK,
Switzerland and Canada agreed yesterday to provide billions of
dollars in loans to banks to boost global markets, which
responded badly to the Feds 25 bps rate cut on Tuesday.
UK Chancellor Alistair Darling welcomed the move saying the
decision is a signal that central banks will do their utmost to
ease the liquidity crisis. Some analysts are comparing the
agreement to a further cut in interest rates, while others say
the deal is a symbol of how serious the crisis has become.
Soaring inflation in the
Gulf is down to a surge in the cost of renting property rather
than Gulf currencies peg to the dollar, the
governor of UAEs central bank said today. Sultan bin
Nasser al Suwaidi told reporters that just 3% of UAEs
current inflation rate was down to its fixed currency.
Inflation in the oil rich state hit a 19-year high of 9.3% last
year, the latest figure available. He explained: The
solution to inflation does not lie mainly in the area of
foreign-exchange policy. Rents are the main cause of inflation
and we are building more houses. He added that the UAE
would only revalue the dirham after consultation with its
fellow Gulf Cooperation Council members, with whom it is
planning to create a monetary union in or after 2010.
The Brazilian senate has
decided not to renew the CPMF, an excise and financial
transactions tax, in a move that will cost the
government about 7% of its total revenue. President Lula was
four votes short of the 49 majority needed to approve the tax,
a proportion of which he proposed to earmark for health care.
To address the shortfall, which is equivalent to around 1.4% of
GDP, the government said it will either raise other taxes or
halt social welfare programs and infrastructure investment. But
analysts believe the increased economic activity as a result of
the tax cut will more than offset this expected loss. In this
year alone, tax revenues have increased by more than the amount
raised by the CPMF and easily exceeded government expectations.
Meanwhile, the Senate approved an extension of the DRU
mechanism, which allows the government greater flexibility in
The Asian Development
Bank downgraded its 2008 GDP forecast for developing economies
in Asia by half a percentage point today, but expected
growth remains strong at 8%. Illiquid financial markets and
rising oil prices are expected to slow expansion in the key
industrialised countries of the Association of South East Asian
Nations (ASEAN) and China. The bank said that ASEANs
collective growth will moderate to 6.1% next year, down from
6.3% in 2007, while Chinese GDP will drop from 11.4% this year
to 10.5% in 2008. Jong-Wha Lee, head of the banks Office
of Regional Economic Integration, said: Slower growth but
rising inflationary pressures despite appreciating currencies
pose major challenges for the regions
Kenya received its second sovereign rating, a 'B+'
long-term foreign currency rating from Fitch. This is
the same level as the rating assigned by Standard & Poor's
in 2006. This suggests Kenya is moving closer to a sovereign
bond issue, as institutional investors generally require two
credit ratings. The country's finance ministry has mooted a
$300 million Eurobond, although this would be too small for an
international benchmark (it would not be included in the JP
Morgan EMBI+), and is unlikely to take place before general
elections on December 27. For more details on the planned bond
please click here.