(Recasts with Polish ERM-2)
By Jason Hovet
PRAGUE, Feb 18 (Reuters) - The zloty rebounded on Wednesday
after a ruling party official said Poland had started ERM-2
talks, but central Europe remained under pressure as
policymakers scrambled to protect tumbling currencies.
The zloty, Czech crown and Hungarian forint fell to
multi-year or record lows this week, hurt by poor economic
outlooks and fears about the region's foreign debt reliance.
Officials are being forced to look at methods other than
direct intervention to stop the falls which have hit companies,
banks and citizens that borrowed in foreign currencies.
Poland's government said on Tuesday it could sell EU funds
through the market if the zloty fell to 5.0 per euro, the
bluntest verbal intervention during a seven-month slide that has
wiped out a third of the zloty's value against the euro.
[]
On Wednesday, a Polish ruling party official was quoted as
saying Poland started talks a few days ago with the European
Central Bank on joining the pre-euro Exchange Rate Mechanism
(ERM-2). []
This boosted the zloty <EURPLN=>, which reversed losses to
rise to 4.831, up 1 percent from Tuesday's domestic close. The
crown <EURCZK=> rose 1.5 percent to 29.06 to the euro by 1220
GMT.
"There's a combination of things.... behind the rally," said
a Prague trader. "There are a lot of screams and shouts from
officials right now, but it seems to be working."
Polish Prime Minister Donald Tusk later on Wednesday
confirmed the government is ready to enter the euro testing
ground without changing the constitution. []
Analysts and the Polish central bank have cast doubt on
Poland's 2012 euro adoption target in recent weeks due to
currency volatility.
Hungarian Prime Minister Ferenc Gyurcsany said on Wednesday
he had asked the central bank and finance ministry to explore
unconventional means of defending the currency. []
Czech central bank Vice-Governor Miroslav Singer said the
bank could end a 200-basis-point easing cycle and raise interest
rates following a 6 percent drop in the crown since its last
policy meeting two weeks ago. []
Falling interest rates to boost weak economies have added to
the decline in currencies, while Polish companies have suffered
losses from currency option deals which went sour after the
zloty reversed from record highs in August. []
"Policymakers are starting to get worried," Calyon currency
strategist Stuart Bennett said. "The problem at the moment,
though, is what is driving this (fall) is something they cannot
control, i.e. risk. Markets have got very worried over the
direction central and eastern Europe is going."
LONG WAY DOWN
In Hungary the forint <EURHUF=> dropped 0.1 percent, off a
record low of 310 per euro hit on Tuesday.
The zloty has plunged 30.7 percent since Sept. 1, and the
forint is down 21.9 percent.
The crown is down 14.5 percent and Romania's leu <EURRON=>
is off 17.9 percent.
Analysts have expected central banks to change their tone on
interest rates or even raise them to boost currencies -- despite
worsening data showing a hard landing for the region's
export-heavy economies.
Two rating agencies said on Tuesday the ratings of emerging
European banks and their western owners could suffer in the
recession, sparking a selloff led by banks. []
Stocks on Wednesday continued a heavy slide, with bourses
losing 3-5 percent. []
Polish and Czech bonds weakened further on Wednesday. A
Czech 8-year floating rate bond auction saw depressed demand
compared to previous sales. []
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 29.06 29.508 +1.54% -7.94%
Polish zloty <EURPLN=> 4.831 4.88 +1.01% -14.82%
Hungarian forint <EURHUF=> 305.2 305.51 +0.1% -13.65%
Croatian kuna <EURHRK=> 7.475 7.47 -0.07% -1.47%
Romanian leu <EURRON=> 4.285 4.301 +0.37% -6.32%
Serbian dinar <EURRSD=> 94.439 93.829 -0.65% -5.25%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -3 basis points to 191bps over bmk*
4-yr T-bond CZ4YT=RR +34 basis points to +238bps over bmk*
8-yr T-bond CZ8YT=RR -1 basis points to +293bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +469bps over bmk*
5-yr T-bond PL5YT=RR +1 basis points to +401bps over bmk*
10-yr T-bond PL10YT=RR +13 basis points to +339bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +4 basis points to +1185bps over bmk*
5-yr T-bond HU5YT=RR -2 basis points to +1043bps over bmk*
10-yr T-bond HU10YT=RR +1 basis points to +864bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1322 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
Spot FX rates
Eastern Europe spot FX <EEFX=> Middle East spot FX <MEFX=>
Asia spot FX <ASIAFX=> Latin America spot FX <LATAMFX=>
Other news and reports
World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaus, writing by Jason Hovet; editing
by David Stamp and Jason Neely)
