By Sandor Peto and Jason Hovet
BUDAPEST/PRAGUE, Feb 5 (Reuters) - Central Europe's
currencies held onto gains on Thursday, with the Czech crown in
the lead, but dealers said the region was expected to stay under
pressure due to a dismal economic outlook and poor investor
sentiment.
The Czech central bank cut interest rates by 50 basis points
to 1.75 percent [] and for the first time also
released exchange rate forecasts, saying it saw the crown at an
average 25.8 to the euro in 2009, much stronger than current
levels. []
The Czech crown <EURCZK=> jumped 1.3 percent on the bank's
forecast, which dealers said helped the unit strengthen past the
key 28 level.
The Czech rate cut followed a rate cut in Romania on
Wednesday and a string of rate reductions in the region in the
past months as inflation eases and central banks seek to help
their export-heavy economies weather the global crisis.
The zloty was roughly stable on Thursday, after a series of
sell-off sessions, but the outlook remains grim with possible
attack on 4.70 against the euro.
"Looking at what happened, further weakening is still
likely, with an attack on 4.70 against the euro. There are no
signals that the trend has reversed," an FX dealer at Warsaw
bank said.
Other dealers also said the odds were pointing towards a
renewed weakening of the region's currencies and bonds.
"Sentiment is still bad ... we tested these higher levels
but it does not mean that downward pressure has disappeared," a
Budapest-based fixed income trader said.
Polish bonds weakened in thin turnover as risk aversion
mounts and the government's euro-adoption plans are being
delayed.
"Bond prices dropped after declarations that our path to the
euro might be longer than expected, also zloty weakening and
risk aversion are taking their toll," Maciej Slomka, head of
bond dealers at Pekao bank said.
A hawkish member of Poland's central bank called for a
slowdown in interest rate cuts due to the zloty's slide, and a
moderate member said the zloty's recent weakening may impact the
bank's decision on rates in February. []
Poland's central bank has slashed borrowing costs by a total
of 175 basis points since November to 4.25 percent, and the
central bank's Governor Slawomir Skrzypek said further rate cuts
would not be ruled out. []
The Romanian leu <EURRON=> firmed 1.0 percent to 4.258 after
Wednesday's central bank measure, the first cut in 19 months,
and dealers also suspected indirect central bank intervention to
support the unit. []
The region's currencies often firmed in the past months
after rate cuts which can help mitigate economic growth
problems, but at times of rising risk aversion the currencies
have continued to weaken.
Before the Czech rate cut, Czech data showed a worse than
expected trade deficit in December, which analysts said will
weigh on the crown. []
"The (Czech trade) number... confirms the (poor) situation
for exporters, which has already been shown in the drop in
foreign orders," said David Navratil, an economist with Ceska
Sporitelna bank.
Hungary's forint <EURHUF=> rose 0.3 percent to 295.61 to the
euro by 1520 GMT, well off a record low of 304 hit on Wednesday,
while the Polish zloty was up 0.1 percent at 4.647 per euro, but
still near 4-1/2 year lows.
Hungarian bond yields rose further, with the three-year bond
trading well above 11 percent.
The European Central Bank held interest rates steady at 2.0
percent on Thursday as expected. []
Hungary's Government Debt Agency (AKK) is expected to decide
later on Thursday whether to hold a government bond auction in
mid February. The AKK suspended regular bond tenders in October
when the local market froze up due to a lack of demand.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 28.145 28.265 +0.43% -4.95%
Polish zloty <EURPLN=> 4.647 4.651 +0.09% -11.45%
Hungarian forint <EURHUF=> 295.61 296.5 +0.3% -10.85%
Croatian kuna <EURHRK=> 7.4 7.405 +0.07% -0.47%
Romanian leu <EURRON=> 4.258 4.302 +1.03% -5.72%
Serbian dinar <EURRSD=> 92.017 92.737 +0.78% -2.76%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +28 basis points to 139bps over bmk*
4-yr T-bond CZ4YT=RR +24 basis points to +139bps over bmk*
8-yr T-bond CZ8YT=RR +19 basis points to +131bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +7 basis points to +379bps over bmk*
5-yr T-bond PL5YT=RR +9 basis points to +306bps over bmk*
10-yr T-bond PL10YT=RR +4 basis points to +249bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +18 basis points to +949bps over bmk*
5-yr T-bond HU5YT=RR +20 basis points to +896bps over bmk*
10-yr T-bond HU10YT=RR +19 basis points to +687bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1622 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
(Reporting by Reuters bureaus; Writing by Jason Hovet/Sandor
Peto/Krisztina Than; Editing by Ruth Pitchford and Toby Chopra)
