The People's Party is the largest party in the Latvian coalition government

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Review

Yesterday night, it was announced that the leader of the Latvian People’s Party Mareks Seglins will resign. The People’s Party is the largest party in the Latvian coalition government. Former Prime Miniser Andris Skele who effectively is the “party owner” of the People’s Party will take over as new official leader of the Party. Mr. Skele has said he would be ready to become Prime Minister again. It should be noted that Mr. Skele has previously voiced support for a Latvian devaluation. This could unnerve markets yet again.
The Latvian Prime Minister Dombrovskis said that the government will continue to work this week on concrete budget measures to meet the lenders’ requirements. However, Dombrovskis has made this kind of promise before without delivering so we think that the IMF and EU will not ease the pressure on the Latvian government until it actually delivers. Time will tell whether Dombrovskis can convince his coalition partners to come through on the promises. Unlike what some market participants seem to think, Latvian risks have not decreased.
Romanian inflation in September inched down further to 4.9% y/y, but the drop was somewhat smaller than what we had expected. Regarding the monetary policy, the current political jitters in Romania might prevent the Romanian central bank from cutting interest rates too aggressively.
Yesterday we published our updated Macro Monitors for Poland and Hungary.

Preview

Hungarian inflation for September will be published today. Inflation in September is broadly expected to inch up slightly, but this is likely due to the base effect.
Watch Romania today. The Romanian parliament is holding a no-confidence vote against the minority government of PM Emil Boc.

Trading update

• Monday morning most CEE currencies did not kick off the week in a positive direction as the fears over Latvia continued to weigh negatively on the CEE region. Nonetheless, in the early afternoon CEE FX gained ground somewhat after the Latvian Prime Minister said that Latvia will meet the IMF/EU agreement. We believe that the impact of his comments will be short-lived and CEE FX could come under renewed pressure when the mood (likely) turns sour in Latvia again.

Czech rates inched up on Monday as some market participants apparently reduced their bets on further rate cuts given the weakening of the CZK over the last week. We however still see downside risk on Czech market rates in the short-term.

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Published On Tue, Oct 13 2009, 07:40 GMT

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