Emerging market dollar-pay debt spreads were wider this week. The US dollar-pay JP Morgan EMBI Global Diversified index returned 6.07% (year-to-date through May 10th, 2012).

Poland’s Monetary Policy Council (RPP) surprised markets by raising its headline interest rate for the first time in ten months by 0.25% to 4.75%, its highest level since January 2009. The rate hike came on the back of concerns over persistently high inflation. In a statement, the RPP declared that it is less concerned about an economic slowdown at this point. It noted that although growth has slowed down somewhat, it is expected to remain relatively high in the first quarter. GDP grew by 4.3% last year and is expected to grow by 2.5% this year. Governor Belka further stated in press conference that the National Bank of Poland could not have normal policy with real rates below zero and that the decision to raise rates was a move to normalize rates rather than tighten policy.

Indonesia kept its policy rate unchanged at 5.75% on the back of inflation risks due to the possibility of higher fuel prices and a declining currency. Though they left the benchmark rate unchanged, the central bank stated that, “Bank Indonesia (BI) will raise interest rates of monetary operation instruments and continue efforts to absorb excess rupiah liquidity to control short-term inflationary pressure and support the stabilization of the rupiah.” BI also stated that economic growth has remained strong. GDP expanded by 6.3% in the first quarter of 2012, above the trend rate of 6.1%.