News
HR: Positive – EU Foreign Ministers’ meeting indicate EU discussions are drawing to a close (p2)
HU: Negative – March Retail Sales surprise on downside (p2)
SRB: Positive – Solid demand at the 18-month t-bill auction (p2)
TK: Mixed – May Capacity utilization rises to 75.2% SA, Real Sector Confidence Index increases 0.4% mom (p2)
Today’s Events
CZ: Govt auctions CZK 7bn 2016 GB / KZ: Govt auctions KZT 17bn 2018 GB / PL: April Retail Sales, April Unemployment / SRB: April Wages / RU: Govt auctions RUB 20bn 2014 and RUB 20bn 2016 OFZ; CPI YTD / TK: MPC Meeting (Policy rate announcement)
EEMEA Markets
Turkey rate decision in focus today – unchanged policy rate but hike in RRR: although market consensus almost unanimously expects an unchanged policy rate, expectations regarding the reserve requirement diverge greatly. This time around, following the bank’s meeting with economists in Istanbul, we gather that the MPC is likely to hike RRR again. The bank had noted that it expects the policy to work in a tangible manner starting from June, while currently there is only marginal slowdown in loan growth, if any. Accordingly, we expect to see another 100bp rise in the RRR on TRY deposits, while we believe the bank is likely to refrain from making a further rise on FX deposits. The big question remains as to whether the bank will impose any RRR on the bank’s swap operations as argued by some participants; though it is hard to tell with the CBT’s imposed monetary policy conduct through the employment of macroprudential measures. In the meantime, while yesterday’s capacity utilization rate and real sector confidence index readings offer little in terms of slow down, expectations for 11YE CPI inflation reached 7.0% following the CBT’s inflation expectation revision to 6.9%. We keep our CPI inflation estimate at 8.1% and expect the effects of the RRR hike series to be somewhat less than expected. Thus, our base case is that the MPC will eventually increase the policy rate to 6.75% in late 2H11 from the current 6.25%.
Hungarian MOL purchase should be FX neutral: yesterday the Hungarian government announced that it bought back 21% of the national oil company (MOL) from Russia’s Surgutneftegaz for EUR 1.88bn. In terms of funding the government noted that (i) it used IMF sources and (ii) the deal should be finalized by the end of August. We understand this IMF funding is the unused part of the expired program and is available at the NBH account. At the end of April EUR 3.9bn was parked at the NBH of which EUR 2bn will be used for Eurobond repayments later in the year. Accordingly, we reckon that the FX impact of the MOL purchase will be neutral. Nevertheless, to the extent that it reduces the government’s net foreign assets it is marginally negative for credit.
Guldem Atabay / Gyula Toth
UniCredit Research
UniCredit Corporate and Investment Banking Unicredit Bank AG