Central banks under pressure to raise rates

07/02/2014 09:40 AST

Central banks in emerging markets are under growing pressure to raise interest rates, to support their currencies and head off inflation caused by weaker exchange rates. Some countries, such as Brazil and Indonesia, have already been raising rates. Markets may force others, such as Hungary or Thailand, into reversing hitherto dovish policies. The following is a list of countries that have raised rates or are expected to do so in the face of an accelerating exodus of foreign investors:

GHANA: raised interest rates by 200 basis points yesterday to 18% to curb a fall in the cedi currency and inflation at three-year highs. It also has tightened foreign exchange rules.

TURKEY: raised all its interest rates on January 29: the overnight lending rate to 12% from 7.75%, the one-week repo rate to 10% from 4.5%, and the overnight borrowing rate to 8% from 3.5%. The bank said it may tighten further if necessary.

SOUTH AFRICA: raised rates for the first time in almost six years on January 30, increasing the repo rate by 50 bps to 5.50%. Markets are pricing in more than 150 bps of hikes over the next six months.

INDIA: surprised markets by raising rates 25 bps on January 28 to 8%, to dampen inflation and prepare for the risk of major capital outflows.

BRAZIL: raised rates by a bigger-than-expected 50 bps to 10.50% on January 15.

The central bank has signalled it may not be ready to slow its rate-hike cycle as inflation remains high. It has raised rates 325 bps since April.

NIGERIA: lifted cash reserve requirements on public sector deposits held by banks on January 21 by 25 bps to 75%, reflecting concern about naira weakness. Analysts expect rates to rise 100 bps later this year.

INDONESIA: has raised rates by 175 bps since last June and next meets on February 13. Central bank governor Agus Martowardojo said he would not hesitate to raise rates if needed nL3N0LB2TE THAILAND: kept rates on hold on January 22, when most analysts had expected a cut to follow a 25-bps easing in November. The central bank voted 4-3 to keep the rate at 2.25%, reflecting its worry that the country’s political crisis could trigger capital outflows.

RUSSIA: may be forced to tighten policy if the rouble - down 5% this year - falls much further. The rouble slide will complicate the inflation picture and central bank plans to bring inflation down to 5% this year.

MEXICO: held rates steady at 3.5% on January 31 but warned that peso depreciation may affect inflation, which is already above the central bank’s 4% upper limit. Governor Agustin Carstens said the central bank was weighing whether monetary policy needed adjusting. MAURITIUS: central bank governor Rundheersing Bheenick said the country needed to raise its 4.65% interest rate to prevent capital flight.

ROMANIA: cut interest rates to a record low 3.5% on February 4, but the move marks the end of a 175-bps rate-cut cycle, analysts said. Governor Mugur Isarescu said volatile capital flows were a risk to the inflation outlook.

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