* Forint, zloty lead gains, crown stable
* Czech May retail sales, C/A data much worse than expected
* Hungary inflation eases for now, rate cuts seen
* Lithuania new president says against devaluation, IMF aid
(adds impact of fresh data, Lithuania comments)
By Marius Zaharia
BUCHAREST, July 14 (Reuters) - The Czech crown lagged its
peers on Tuesday when economic data weakened growth
expectations, while the Hungarian forint and the Polish zloty
gained from rising bourses and an overnight spillover from Asian
markets.
In Hungary, inflation surprised by easing in June, whereas
most analysts had expected it to pick up, thus supporting
expectations for rate cuts []. However, prices are
expected to surge later in the year due to announced tax hikes.
The crown <EURCZK=> briefly fell beyond 26 per euro before
stabilising around that level, after retail sales came out much
weaker than expected, posting a 7.5 percent drop on the year in
May. [] <ECONCZ>
The current account also posted a much wider than expected
deficit in May, largely due to dividend payments by Czech
subsidiaries and investment abroad [], further
weakening sentiment.
"It is still true that the development of the balance of
payments gives no reason for strengthening of the crown," said
Helena Horska of Raiffeisen Bank. "In the short term, we bet on
its weakening."
The crown traded virtually flat on the day at 0921 GMT, when
the Polish zloty <EURPLN=> and the Hungarian forint <EURHUF=>
were 0.8 and 0.9 percent stronger and the Romanian leu <EURRON=>
was up 0.2 percent.
"The region feels better today in line with Asia ... except
for the Czech Republic, where the news flow is slightly more
negative," one dealer in Bucharest said.
Central bank Vice Governor Miroslav Singer said he expected
the economy to drop by more than three percent this year, deeper
than the latest official forecast. []
However, cutting rates from the current 1.5 percent would be
difficult, he said -- the opposite of what this week's industry
and retail data indicated.
"It is surprisingly strong negative information," said David
Marek from Patria Finance. "Data ... point towards lower
interest rates."
LITHUANIA AGAINST DEVALUATION
Lithuania's new president said on Tuesday she was against a
devaluation of the litas, which is effectively pegged to the
euro <EURLTL=>, and also opposed asking the IMF for help as long
as the country can obtain financing from international markets
[].
Markets took the comment with a pinch of salt and failed to
react to the news, given that worries of a possible devaluation
in the Baltic states -- especially in Latvia -- and a possible
spillover into the rest of emerging Europe remain high.
"I don't think it should have any major effect on the CEE,"
said Nordea's Anders Svendsen. "The risk of a Baltic devaluation
will remain a factor for the CEE currencies for some time."
Currencies drifted lower on Monday, when worries over
ballooning budget gaps and public debt hit the region and the
zloty led losses after a row between the Polish government and
the central bank over the use of the latter's 2009 profit.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.005 26.006 0% +2.88%
Polish zloty <EURPLN=> 4.362 4.398 +0.83% -5.66%
Hungarian forint <EURHUF=> 275.3 277.76 +0.89% -4.27%
Croatian kuna <EURHRK=> 7.328 7.325 -0.04% +0.5%
Romanian leu <EURRON=> 4.214 4.221 +0.17% -4.74%
Serbian dinar <EURRSD=> 92.96 92.877 -0.09% -3.74%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 155bps over bmk*
4-yr T-bond CZ4YT=RR -25 basis points to +174bps over bmk*
8-yr T-bond CZ8YT=RR +3 basis points to +304bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -7 basis points to +752bps over bmk*
5-yr T-bond HU5YT=RR -20 basis points to +673bps over bmk*
10-yr T-bond HU10YT=RR -10 basis points to +573bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1221 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia,
Editing by Ruth Pitchford)
