Floating Forint Sets The Stage For Rate Hikes

We believe that the country at most risk of devaluing is Latvia, which has some of the worst external account dynamics in the region. Its current account deficit, at 23.4% of estimated GDP in 2007 is the largest in the region and its external debt stock is climbing to perilous levels at 132.3% of GDP and 327.6% of exports at end-2007. Moreover, its foreign exchange reserves, at just over US$5.0bn will be insufficient to cover corporate debt shortfalls in the event of a serious tightening of local credit markets and/or downturn in the economy.

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