Emerging market dollar-pay debt spreads tightened this week. Encouraging economic releases in the US brought back some positive risk sentiment which drove equity indices higher and credit spreads tighter. The US dollar-pay JP Morgan EMBI Global index returned 2.53 % (year-to-date through March 4th, 2010).

In Malaysia, the Central Bank raised its benchmark interest rate by 25 basis points to 2.25%, surprising market analysts who had expected no change. The tone of the statement following the announcement was more hawkish, citing the potential negative effects on the financial system of leaving monetary policy too loose for too long. The front end of the local curve was weaker.

In Indonesia, the Central Bank kept its policy rate unchanged at 6.5%, in line with expectations. With Bank Indonesia comfortable with the inflation outlook, they will likely remain “on hold” for the foreseeable future in order to maintain the momentum of growth for the country this year.