* Poland budget weighs on zloty, C/A turns into deficit
* Hungary's CPI lower than expected, rate cuts seen
* More weakening seen next week as investors cash out
(Adds Poland C/A, detail, updates market)
By Dagmara Leszkowicz and Marton Dunai
WARSAW/BUDAPEST, Sept 11 (Reuters) - The Polish zloty
<EURPLN=> weakened on Friday because of worries over next year's
budget gap but largely shrugged off data showing a surprise
deficit in the July current account.
Poland recorded a current account deficit of 565 million
euros in July compared to a surplus of 459 million euros in
June, central bank figures showed. [] Analysts
polled by Reuters had expected a surplus of 215 million euros.
"The data has no impact on the central bank's Monetary
Policy Council (MPC) decisions, but it may harm the zloty," said
Ernest Pytlarczyk, head analyst at BRE Bank in Warsaw. "But I
expect the July C/A to be a one-off."
The zloty was 0.4 percent lower on the day against the euro
after the announcement. It has lost almost 2 percent against the
euro since the budget was approved at the start of the week.
In Hungary, inflation data added to speculation that the
country's central bank may cut interest rates further from their
present 8 percent. The forint was 0.5 percent lower at 1410 GMT.
Hungary's statistics office said consumer price growth
slowed to 5 percent in August from 5.1 percent in July and
compared to analysts' forecasts of 5.5 percent. []
"Interest rates can go lower now than earlier expected. The
question is whether interest rates can go below 6 percent next
year, now I think that they can," said Gyorgy Barcza at K&H Bank
in Budapest.
Other currencies were mixed with the Czech crown staying
relatively stable and the leu down 0.8 percent.
WEAKENING SEEN
"Focus next week will be on Poland's industrial output data,
which likely improved further in August," Credit Suisse said in
a note to clients.
However, that may not be enough to stop the recent slide in
the zloty and Polish bonds, traders and analysts said, which
could set the tempo for the rest of Eastern Europe.
Budget worries in Warsaw might play a big part in that
weakening, as could investment flows, one analyst said.
"July brought an influx of portfolio investments on a scale
not visible for many years," BPH Economist Andrzej Halesiak
wrote in a note. "Perhaps (the) current weakening of the zloty
is a signal of some foreign investors exiting Poland," due to
concerns over the growing budget deficit.
Polish bonds on Friday continued their weeklong easing, with
5-year and 10-year papers falling the most.
"Investors are likely to run away from the long end to the
short end," one Warsaw-based dealer said.
Hungarian bonds gained on growing rate cut expectations and
were likely to remain stable as supply was tight and there was
increasing interest from overseas investors, one dealer in
Budapest said.
The forint, however, may not reflect that, and was more
likely to take its cue from the zloty and test weaker levels,
another dealer added.
"The (National Bank of Hungary), in our opinion, is unlikely
to object to a gradual weakening of the HUF," Barclays Capital
analyst Christian Keller wrote in a note.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.439 25.473 +0.13% +5.17%
Polish zloty <EURPLN=> 4.164 4.147 -0.41% -1.18%
Hungarian forint <EURHUF=> 272.84 271.6 -0.45% -3.4%
Croatian kuna <EURHRK=> 7.349 7.33 -0.26% +0.22%
Romanian leu <EURRON=> 4.279 4.244 -0.82% -6.18%
Serbian dinar <EURRSD=> 93.29 93.42 +0.14% -4.08%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -2 basis points to +201bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +187bps over bmk*
10-yr T-bond CZ10YT=RR +5 basis points to +184bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +397bps over bmk*
5-yr T-bond PL5YT=RR 0 basis points to +357bps over bmk*
10-yr T-bond PL10YT=RR +4 basis points to +299bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -2 basis points to +639bps over bmk*
5-yr T-bond HU5YT=RR 0 basis points to +562bps over bmk*
10-yr T-bond HU10YT=RR +5 basis points to +488bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1610 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Marton Dunai; editing
by Lin Noueihed)
