New outlook, Turkey FX reserves, Russia’s fiscal boost

The early signs suggest that the Iran conflict and surge in energy prices have had only a limited impact on activity across Emerging Europe so far. But balance of payments pressures are building in Turkey and the longer oil prices remain high, policymakers will soon face a difficult trade-off between letting the lira adjust and higher inflation. At the very least an interest rate hike next month is increasingly likely. Elsewhere, Russia is one of the main beneficiaries from higher energy prices and this week officials postponed plans to tweak the fiscal rule, which will provide support to the ruble. But they appear to be viewing the oil windfall as temporary and it’s likely that much of it will be saved.