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EMERGING MARKETS-Turkish lira flat before central bank meeting; zloty sinks

* Turkish central bank expected to raise rates- Reuters poll

* Polish zloty loses about 0.5%

* Central bank meetings in Israel, Ukraine expected

Oct 22 (Reuters) - Turkey’s lira was barely moving on Thursday ahead of an expected interest rate increase by the central bank, while the Polish zloty dropped in the face of strict restrictions to contain the coronavirus.

The zloty sank about 0.5% to the euro, leading losses among its central European peers after Poland’s prime minister said he would recommend imposing the highest level of coronavirus restrictions nationwide, after a new record of more than 10,000 daily cases.

Most other emerging market currencies in Europe, Middle East and Africa weakened as coronavirus cases continued to rise.

The Turkish central bank faces the dual challenge of a sinking lira and spiking inflation, and is expected to raise rates by 175 basis points to 12%, a Reuters poll showed. It had unexpectedly increased rates in September.

Concerns over Turkey’s diminishing foreign exchange reserves, coupled with tensions in the Caucasus and Cyprus had pushed the lira to record lows earlier in the month.

“The monetary policy committee (MPC) might think that an average funding rate/policy rate of about 12% might be adequate to bring inflation lower to its end-2021 forecast of 8%,” analysts at Credit Suisse wrote in a note.

“Given the lack of policy visibility, we still find it difficult to have a strong conviction about the MPC’s move today.”

Turkish stocks were about 0.3% higher, while most other emerging market equities were mostly flat or slightly lower. The MSCI’s index of emerging market stocks fell 0.2%.

Markets were also looking ahead to central bank meetings in Israel and Ukraine. Both central banks are expected to make no changes to their benchmark rates.

Russia’s rouble shed about 0.5% to the dollar as oil prices sank after a build in U.S. gasoline inventories pointed to a coronavirus-driven demand drought.

Elsewhere, credit ratings agency S&P cut Zambia’s credit rating to “selective default” after the government missed an interest payment last week and announced it would suspend debt service to external commercial creditors.

For GRAPHIC on emerging market FX performance in 2020, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see tmsnrt.rs/2OusNdX

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For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see

Reporting by Ambar Warrick in Bengaluru. Editing by Jane Merriman

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