The IMF mission left Kiev last week

EMEA Daily

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Review

Last week the IMF said that it would send a mission to Romania to start assessment on a second review of Romania’s loan programme, but the IMF chief for Romania, Jeffrey Franks, added that a follow-up mission may be needed after the new government is appointed. Hence, we do not expect that Romania will get another tranche from the IMF until it has a new effective government. That would clearly be negative for Romania. On the other hand, we acknowledge that Romania is not in as imminent need of IMF money as is Latvia, for example.
The IMF mission left Kiev last week with a ‘staff-level’ agreement on policy discipline and corrective actions. With the Ukraine moving closer to elections (January 2010) it looks increasingly uncertain that it will fulfil IMF requirements. Hence the disbursement of the next stand-by tranche in November could be at risk.

Preview

Lithuanian Q3 GDP figures will be published today. Unfortunately there are few signs of stabilisation in the Lithuanian economy and we expect GDP to have dropped by as much as 25.3% y/y in Q3.
The Turkish central bank will publish its quarterly inflation report today. Given the actual inflation development it is pretty clear that the TCMB is likely to adjust its inflation forecast down from 5.9% previously for year-end 2009, to perhaps around 4.8-5.2%. On the other hand, year-end 2010 inflation could be adjusted up from the previous 5.3%.

Trading update

We have been arguing for some time that rates in a number of EMEA countries went too far down and that the rally in some EMEA fixed-income markets was overdone – e.g. Turkey and Hungary. Since Friday Turkish swap rates continued to rise triggered by concerns over the government’s debt rollover and we might be in for some shortterm profit taking – today Turkish swap rates added 25 basis points across the curve. Yesterday the Romanian Finance Ministry rejected all bids in one-year Treasury bill auctions saying that the yields were unacceptable. The next in line for correction in fixed income markets could be the Hungarian markets. We see the risks of spill-over from fixed income to FX markets as fairly small right now, but that could change.
RUB FX strengthened around ten kopecks against the euro/dollar currency basket as the central bank (CBR) cut its intervention bid level to 35.4. The CBR was reported as buying about USD1.5bn in the FX market. Otherwise most currencies in the region fell as much as 1% over the day.

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Published On Tue, Oct 27 2009, 06:54 GMT

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