Another day of market turmoil, another rate hike

Financial market turmoil continued yesterday, but central banks also continue to refuse to allow it to deter them from further monetary tightening.

Yesterday, it was the turn of South Africa's central bank to hike rates. Bloomberg reports:

South Africa's central bank increased its benchmark interest rate by half a percentage point for a second time this year as inflation remained above the target range.

The Reserve Bank raised the repurchase rate to 10 percent, the highest in almost four years, Deputy Governor Xolile Guma said in a televised speech from Pretoria today. That was in line with the forecast of all but one of 26 economists surveyed by Bloomberg.

In contrast, the talk in the US is largely focused on whether the Fed will cut rates, especially after yesterday's data showing that the US housing market is still in a downtrend. Bloomberg reports:

Builders in the U.S. started work on the fewest homes in a decade in July as the industry showed no sign of recovering from an 18-month recession.

The greater-than-forecast 6.1 percent decrease to an annual rate of 1.381 million followed a 1.47 million pace in June, the Commerce Department said today in Washington. Building permits also fell to a 10-year low.

Over in Europe, the focus of debate is on how much more the ECB would hike rates as inflation in the euro zone slowed in July. From Bloomberg:

Consumer prices in the 13-nation euro region increased 1.8 percent from July 2006, down from the 1.9 percent rate recorded in June, the European Union's statistics office in Luxembourg said today. Last month's rate matched an initial estimate published July 31. Prices fell 0.2 percent on the month...

The euro area's so-called core inflation rate, which excludes volatile food and energy prices, was unchanged at 1.9 percent. Core prices fell 0.4 percent from the previous month.

At least there isn't much doubt that China will continue to tighten. Although growth in industrial production slowed to 18 percent in July from 19.4 percent in June, fixed-asset investment continues to grow at a rapid pace, as Bloomberg reports.

China's spending on factories, equipment and property rose 26.6 percent in the first seven months of 2007, maintaining pressure on the central bank to raise interest rates to cool the economy.

Fixed-asset investment in urban areas climbed to 5.67 trillion yuan ($747 billion), the statistics bureau said today. That was close to the 26.7 percent increase from a year earlier for the first six months and more than the 24.5 percent growth for all of 2006.