* Zloty falls late, drags region lower
* Poland cuts rates 25 bps as expected, more easing seen
* Analysts see room for more weakening
(adds late Polish cbank comments, analyst quotes)
By Jason Hovet and Marius Zaharia
PRAGUE/BUCHAREST, Feb 25 (Reuters) - The zloty fell on
Wednesday after the Polish central bank pointed to more monetary
easing after an interest rate cut of a quarter percentage point
earlier in the day.
Poland's central bank cut its main rate to 4.0 percent as
expected, but the cut was lower than three previous moves that
had reduced the base rate by a total 175 basis points.
[]
In a conference following the decision, governor Slawomir
Skrzypek said the bank was considering lowering its deposit and
required reserve rates to boost liquidity. []
Moreover, central banker Marian Noga told Reuters he saw
room for one or two more rate cuts of 25 bps. []
Although the bank tried again to talk up the currency,
saying it may use "instruments directly affecting the zloty
exchange rate" and reiterating the zloty does not reflect
fundamentals, analysts said comments on monetary easing were
more prominent and weakened the zloty.
"That is a direct threat of interventions," said Nordea
Bank's Anders Svendsen. "However, apparently, the majority of
MPC members still saw room to cut rates to help the economy. In
our view, this somewhat undermines the threat of interventions."
"If the weakness and volatility of the zloty was considered
a serious threat to financial stability then the first thing to
do would be to stop cutting interest rates and perhaps even
threat to hike interest rates."
Falling interest rates have intensified a deep slide in
emerging European currencies, analysts have said, and many
expect a pause in many of the region's easing cycles to ensure
financial stability.
Hungary left rates unchanged on Monday, even if central
banker Julia Kiraly said there were downside risks to economic
growth and a recession in 2010 as well [], while the
forint was expected to remain volatile. []
By 1630 GMT, the zloty <EURPLN=> dipped 1 percent on the day
after trading stronger for most part of the session. The forint
<EURHUF=> lost 0.7 percent, the Romanian leu <EURRON=> fell 0.2
percent, while the Czech crown <EURCZK=> gained 0.15 percent.
Regional central bankers launched on Monday a joint push to
support their currencies that sank to multi-year or record-lows
in the past week, saying their sharp drop did not reflect their
economic fundamentals and was overdone. []
The joint central bank action had temporarily boosted
currencies that have swung widely in the previous week. On
Wednesday, currencies were mostly even with closing levels seen
on Feb. 13, but still down 5-12 percent in 2009.
Strategists have said more weakening is likely in the first
half of this year. SEB bank said on Tuesday the recent gains are
a good opportunity to enter short positions. []
Recent currency gains have helped lift Hungarian bonds,
while in Poland yields were mostly flat.
The once-booming central and eastern Europe has been hard
hit by the global economic crisis, with sinking growth outlooks
and worries over many countries' foreign credit exposure
hammering currencies this year.
Policymakers have been at pains to point out differences in
their respective countries. A Standard & Poor's report this week
said the Czech Republic, Poland and Slovakia were better
positioned to weather the global slowdown. []
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 28.395 28.438 +0.15% -5.78%
Polish zloty <EURPLN=> 4.694 4.648 -0.98% -12.33%
Hungarian forint <EURHUF=> 301.4 299.41 -0.66% -12.56%
Croatian kuna <EURHRK=> 7.383 7.547 +2.22% -0.24%
Romanian leu <EURRON=> 4.284 4.276 -0.19% -6.29%
Serbian dinar <EURRSD=> 94.253 94.069 -0.2% -5.06%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +31 basis points to 208bps over bmk*
4-yr T-bond CZ4YT=RR -16 basis points to +229bps over bmk*
8-yr T-bond CZ8YT=RR -12 basis points to +205bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -3 basis points to +433bps over bmk*
5-yr T-bond PL5YT=RR +2 basis points to +370bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +311bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +17 basis points to +1192bps over bmk*
5-yr T-bond HU5YT=RR +43 basis points to +1060bps over bmk*
10-yr T-bond HU10YT=RR -4 basis points to +856bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1830 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet/Marius
Zaharia, editing by Victoria Main)
