Turkish inflation is expected to increase considerably

EMEA Daily

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Review

Last night the Polish Prime Minister Donald Tusk announced that the government had not approved the euro convergence plans, as the junior partner in the government coalition, the Polish Peasant Party (PSL), had some doubts. This is clearly bad news and is an indication that PSL does not support Finance Minister Rostowski’s plans for fiscal tightening.
Yesterday Fitch affirmed Romania’s “BB+” long-term foreign currency rating and revised the outlook to stable from negative. This comes on the back of the IMF’s decision to go ahead with paying the next tranche on Romania’s IMF loans.
Yesterday, the South African Mineral and Resources Minister Susan Shabangu refused calls from the ANC’s youth wing that local mines should be nationalized. She said that nationalism of South African mines is not government policy and is unlikely to happen any time soon.

Preview

Today, the key events are the rate decision in Romania and Turkish inflation for January. It is broadly expected that the Romanian central bank will continue its monetary easing given that Romania has secured another tranche on its IMF loan. We and consensus expect the NBR to deliver yet another 50bp rate reduction, which will bring its key policy rate to 7.00%.
Turkish inflation is expected to increase considerably. We, along with consensus, expect inflation to rise over 8%, which is more than one ppt higher than December’s 6.53% y/y. The main culprit is the base effect, but also higher prices for tobacco.

Trading Update

Sentiment remained bullish in CEE FX markets yesterday with the EUR/PLN below 4.00, EUR/CZK below 26 and EUR/HUF below 270. Even though we don’t see EUR/PLN and EUR/CZK as overvalued from a long-term perspective, we think that this might be the time to look at hedging CEE FX exposure. This is especially the case for HUF, which we think is now trading at overvalued levels. Furthermore, the forint is the most sensitive to spill-over from the Greek situation. 6.53% y/y. The main culprit is the base effect, but also higher prices for tobacco.

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Published On Wed, Feb 3 2010, 06:47 GMT

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Danske Bank A/S

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