* Romania leaves rates flat, leu unmoved
* Hungary's forint firm as market digests budget plans
* Markets awaiting Fed decision
(Adds fixed income, Polish finmin fcast)
WARSAW, Nov 2 (Reuters) - Hungary's forint hovered around
four-week highs on Tuesday, its first trading day after Budapest
announced a 2011 deficit target below 3 percent of GDP, but the
leu was unmoved after Romanian interest rates were kept on hold.
Romania's central bank kept its key interest rate at 6.25
percent as expected, as higher inflation caused by a sales tax
hike left limited scope for it to cut rates to aid growth.
[]
"Today's decision was widely expected," said Melania
Hancila, chief economist at Volksbank in Bucharest. "It is an
appropriate one taking into account the macroeconomic conditions
and uncertainties regarding fiscal and public salary policies."
The bank halted a 400 basis points easing cycle after the
government raised value added tax by 5 percentage points in
July, part of efforts to cut its budget gap and keep an
International Monetary Fund-led bailout on track.
In Hungary, the ruling centre-right Fidesz party said on
Saturday it aimed to cut the budget deficit to 2.94 percent of
GDP in 2011, and that it saw economic growth picking up to 3
percent from about 0.8 percent seen this year. []
Dealers said the market was awaiting rating agencies'
comments following the government's announcement.
S&P and Moody's have already put a negative outlook on
Hungary's debt, which is rated just one notch above "junk".
"The long-term story is horribly bearish," a Budapest-based
dealer said.
"Investors remain unconvinced by the government's pledge to
bring the deficit within the EU's ceiling next year.
Spending-side measures lack anything that resembles a reform."
By 1044 GMT, the leu <EURRON=> was 0.1 percent down against
the euro, off its previous moderate gains, while Hungary's unit
<EURHUF=> was 0.1 percent up at 270.34 against the common
currency. Dealers said the forint gains were mostly caused by a
falling dollar as international markets position in anticipation
of further monetary stimulus in the United States.
Elsewhere, the Polish zloty <EURPLN=> rose some 0.4 percent,
while the Czech crown <ERUCZK=> edged down 0.1 percent against
the euro.
POLISH BOND YIELDS UP
Poland's finance ministry released its monthly inflation
forecast, which showed consumer prices likely accelerated to 2.9
percent on an annual basis last month from 2.5 percent reported
for September.
Bond yields rose some 3-4 basis points across the curve,
after the forecast as stronger inflation readings could prompt
the central bank's Monetary Policy Council to raise rates soon.
However, policymakers played down the ministry forecast,
saying it could be a one-off effect. []
Markit Economics released PMI indices for the region on
Tuesday, with the Polish reading hitting a 77-month high of 55.6
points, while Hungary's edged up to 51.7 points. But dealers
said the readings, though pointing to a solid pick-up in
regional manufacturing, had a limited impact on currencies.
Dealers across the region said markets were still in a
wait-and-see mood ahead of a U.S. Federal Reserve meeting on
Wednesday, at which it is widely expected to announce another
round of monetary easing. Such a move could boost central
Europe's currencies.
"The decision itself is already priced in, the key question
now is its scope," said Dorota Strauch, FX analyst at
Raiffeisen. "If it is bigger than expected, the region may gain
further as risk appetite would likely increase."
Dealers say the zloty and forint will be the most sensitive
currencies in the region to the Fed's expected action.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.5 24.475 -0.2% +7.42%
Polish zloty <EURPLN=> 3.949 3.966 +0.43% +3.93%
Hungarian forint <EURHUF=> 270.52 270.7 +0.07% 0%
Croatian kuna <EURHRK=> 7.34 7.345 +0.1% -0.42%
Romanian leu <EURRON=> 4.282 4.276 -0.14% -1.09%
Serbian dinar <EURRSD=> 107.09 107.29 +0.19% -10.47%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 83bps over bmk*
7-yr T-bond CZ7YT=RR 0 basis points to +100bps over bmk*
10-yr T-bond CZ9YT=RR +3 basis points to +114bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +374bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +352bps over bmk*
10-yr T-bond PL10YT=RR +4 basis points to +320bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -4 basis points to +539bps over bmk*
5-yr T-bond HU5YT=RR -7 basis points to +508bps over bmk*
10-yr T-bond HU10YT=RR -2 basis points to +450bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1144 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Dagmara Leszkowicz,
editing by Catherine Evans)
