Latvia is poised to devalue its currency at least 15 percent by the end of 2010 to boost exports and cut the budget gap as the economy contracts at the fastest pace in more than a decade… deficit may grow to a record 10 percent of the economy this year, twice the initial 5 percent target set last year by international agencies that provided a 7.5 billion- euro ($11.2 billion) bailout loan. Latvia may already have taken the first step toward devaluation after an announcement on Oct. 6 that the government was considering rules to cap mortgage holders’ liability, which would help limit losses from a devaluation.
More and more scary bells each week are coming from Latvia. After the announcement the yield on sovereign bond due 2018 rose almost 1 percentage points, CDS jumped >20%. In last two weeks Latvian central bank had zero net intervention in FX market. Would be ridiculous for Mr. Rimsevics to spend another billion euros on defending currency. Probably he will not. Creditors would be flamed out otherwise.
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Ober-Haus Real Estate Advisors is presenting the Lithuanian apartment price index (OHBI), which shows summarized changes in prices for apartments in the five largest Lithuanian cities (Vilnius, Kaunas, Klaipėda, Šiauliai, and Panevėžys).
In September Lithuanian real estate prices declined 1.8% m/m and 30.3% y/y. Record setting continues. This September was the worst ever for the real estate in Lithuania.
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Finance Minister Anders Borg has had talks with the major Swedish banks and warned of a near economic collapse in Latvia… The international community’s patience is very limited… In secret talks with the Swedish banks have Anders Borg explained the growing pressure that exists within the International Monetary Fund (IMF) to force Latvia to a devaluation… Since it is difficult to safely assess Latvia’s ability to pay and with conditions for recovery, one cannot completely exclude the risk of a major default.
According to translated version of SVD.SE, whatever that could mean. Anyway, one of the major barriers of devaluation could be removed by the Latvian government…
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Latvia will probably devalue its currency in the next year since the government may not be able to continue cutting spending in line with its international program… We think it’s more likely than not that Latvia will devalue… [Real effective exchange rate] needs to decline by “about” 25 percent to return to levels in 2004 “when the bubble started to inflate,” Shearing said. The real effective exchange rate has weakened 3.5 percent from its peak. A Latvian devaluation will mean Estonia and Lithuania are likely to follow suit and devalue their currencies…
That’s what Bloomberg released today. Quite a strong message from Capital Economics. Will it raise the next economy run?
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Lithuania’s central bank said on Wednesday it had ordered the country’s sixth-largest bank, Snoras, to raise capital and imposed limits on its risk-taking… Snoras had to shore up capital to cushion risks, mainly from operations with non-residents, but the bank was stable… A Snoras bank spokesman said the bank’s capital adequacy ratio was 8.42 percent at the end of the second quarter, compared to the minimum requirement of 8.0 percent.
Oops. 8.42 means should the bank’s equity decline 5%, it will brake the minimum requirement. In the last 12 month Snoras lost 9.32mn litas or 1.6% of equity. More to follow.
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