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The Romanian central bank cut its key policy rate by 50bp to 8.00%

Wed, Sep 30 2009, 05:16 GMT
by Lars Christensen

Danske Bank A/S

Review

• Yesterday Erik Berglof, the European Bank for Reconstruction and Development's chief economist, said at the Reuters Central European Investment Summit: “We know that non-performing loans are increasing. They haven't been increasing at the pace we were worried about (at the start) but that is because in some countries the way official statistics report them is not satisfactory”. We think that Mr. Berglof’s comments are rather negative and that the continued negative news flow concerning the state of the banking sector particularly in Russia and Ukraine is clearly something that merits attention.

• The Russian central bank lowered its key rates yesterday in a move designed to support the economy. Further rate cuts are in the pipeline - see comment.

• The Romanian central bank cut its key policy rate by 50bp to 8.00%. This move was fully justified given continued subdued inflationary pressures. Nevertheless, recent weakness in the leu and signs of a slight easing in global risk appetite limit opportunities for additional monetary easing in coming months. Further, Romanian parties nominated the current Romanian central bank governor Mugur Isarescu for a further five-year term. His reappointment would clearly be good news for Romanian markets.

Preview

• Polish rate decision meeting today should be a non-event. The Polish central bank (NBP) is expected to leave its key rate unchanged at 3.5%. Last week NBP Governor, Slawomir Skrzypek, indicated that the Monetary Policy Council would retain its easing bias. We expect no further rate cuts in Poland during the forecast period.

Trading update

• EMEA FX markets were mixed on Tuesday. The Russian central bank intervened heavily to prevent RUB from appreciating.

• The most significant development in the fixed income markets was the sharp rise in Turkish swap rates which added around 20bp across the curve. Recently we have seen a very strong rally in Turkish rates which hover around record lows on prospects of further monetary easing. The question now is: how much lower can rates go?

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Published on  Wed, Sep 30 2009, 05:20 GMT