Review

  • The Turkish central bank lowered both key interest rates by 50bp last night. The borrowing rate was lowered to 7.25% from 7.75% and the less important lending rate was lowered to 9.75%. The IMF was "encouraged" by Turkey’s medium-term fiscal plan although says that further work is needed. Standard & Poor’s raised its outlook on Turkey’s sovereign credit rating to stable from negative. This is obviously good news and we expect Moody’s in the near future to upgrade Turkey’s credit rating by one notch.

  • Polish industrial production fell 0.2% y/y in August, a worse outcome than the consensus expectation of 0.3% y/y positive growth. July’ industrial production was revised slightly up to a drop of 4.4% y/y.

  • Worries over the budget situation in Latvia are again on the rise after the Latvian parliament yesterday voted against a new real estate tax. This is highly worrying, as the Latvian government has committed itself to introducing the new real estate tax as part of it’s loan agreement with the EU and the IMF. Notably all but one members of parliament from the coalition’s largest party the People's Party - which holds 21 of the 100 seats in parliament - voted against the law. This significantly escalates in conflict within the government about the IMF package and the planned fiscal austerity measures and makes it increasingly likely that the coalition could collapse which potentially might jeopardize Latvia’s Standby Agreement with the EU and the IMF.


Preview

  • The Turkish Finance Ministry will publish its mid-term fiscal plan for 2010-12 (see comment)

Trading update

  • Most CEE FX-markets continued its rally during Thursday’s session. However, later on Thursday most EMEA FX lost ground and ended on the softer side. The Russian rouble gained around 0.7% against the basket. Recently the rouble outperformed the dollar as EUR/USD surged. This trend is likely to continue as long as the risk sentiment is intact and oil rallies.

  • The South African rand saw a setback on Thursday as gold prices lost some momentum, but also on comments from the SARB governor, Tito Mboweni. He noted that the recent appreciation of the ZAR is overdone. Recently, the rand has been supported by ample USD liquidity, high gold prices and continued M&A flows. We think the SARB might step up the verbal intervention to weaken the rand if the strengthening continues – and if it does not help then SARB could cut interest rates at next week’s MPC meeting.