Emerging market dollar-pay debt spreads were tighter this week. The US dollar-pay JP Morgan EMBI Global Diversified index returned +2.10% (year-to-date through February 2nd, 2012).

The Central Bank of Columbia surprised the market this week by hiking the overnight rate by 25 basis points (bps) to 5%. The hike comes after concerns regarding low interest rates, high economic growth, overheating credit, and domestic demand growth. Central Bank Chief José Dario Uribe also cited high commodity prices and fears of a “greater than anticipated” recession in Europe as further rationale for the hike. In third quarter of 2011, GDP growth came in higher than expected at 7.7% year over year while domestic demand grew at 9.4% over the same period, driven by strong household consumption.

Bank Negara of Malaysia kept its overnight policy rate unchanged for an eighth consecutive month at 3.0%, in line with economists’ expectations. The last policy change came in May, when Bank Negara hiked rates by 25 bps to the current 3.0%. The Monetary Policy Committee stated that it expects the global environment to become more challenging in the near future and that Malaysia’s “growth and inflation prospects will be affected by these external developments.”