(Updates throughout)
By Jason Hovet
PRAGUE, Oct 8 (Reuters) - Ailing eastern European currencies
fell on Wednesday, despite interest rate cuts by the world's big
central banks to stabilise reeling markets as investors mulled
the coordinated move's impact on the credit crisis.
The half percentage point rate cuts temporarily boosted
markets and laid more pressure on central European central banks
to follow suit as the mounting financial crisis threatens a
deeper global economic slowdown.
Regional interest rate outlooks for the most part have
shifted to the looser side in recent weeks, notably in Poland,
but policymakers stayed mainly on the sidelines on Wednesday
[].
Currencies recouped losses briefly in the afternoon, before
retreating more on Wednesday, with the Polish zloty <EURPLN=>
falling 1.5 percent to 3.466 versus the euro by 1419 GMT, with
Hungary's forint <EURHUF=> just behind, down 1.2 percent at 252.
"We're still seeing widespread risk aversion," said Jon
Harrison, a currency strategist for Dresdner Kleinwort. "It's
clear that something more than just rate cuts will be needed."
The region's currencies have swung widely this week as
questions rise over western banks' stability and concerns grow
that the global economy is in for a deep slowdown, hitting
export-dependent central European states.
Flows have been limited and frozen credit markets have sent
investors scrambling for cash, causing volatility in markets.
"The initial optimism (about the rate cuts) quickly
evaporated, the forint bottomed out at 254.70/80 per euro, but
it can move one forint one way or the other in a matter of
minutes," a Budapest-based currency dealer said.
Hungarian government bond yields dropped by 10-15 basis
points on all maturities after the cuts.
Since the start of October, the forint has shed 2.6 percent
and the zloty 1 percent. Romania's leu <EURRON=> is off 1.2
percent in that time after a 0.9 percent gain to 3.876 per euro
Wednesday. On Monday, the leu's October losses were 4 percent.
Investors have turned negative on countries like Romania and
Hungary, which are more exposed to loans in foreign currencies.
However, Central European financial systems have so far been
somewhat shielded from the turmoil, with no bank failures or
forced bailouts and generally stable inter-bank liquidity.
The Czech crown <EURCZK=>, seen as a safe haven due to solid
fundamentals, reversed mild losses to trade even at 24.596
against the euro.
Lucy Bethell, a currency strategist at RBS, said the
near-term direction of the markets would depend on future moves
on equities markets, which were hammered overnight.
Asian and European stocks sold off, with eastern European
bourses all touching multi-year lows [].
The Prague bourse <> clawed back from an 8 percent drop
to close 3.9 percent down, and Budapest <> also cut losses.
But Romanian authorities halted trading on the bourse <>
there after heavy losses [].
RATE CUTS?
Bethell said the coordinated move strengthened the argument
interest rate cut.
"It feeds into domestic rate decisions," Bethell said. "So I
would expect the Czech national bank to be the first to respond
with a rate cut in November but I think it's much more difficult
for the Hungarian and the Poles to follow suit."
The policy shift has been most dramatic in Poland, where
just a month ago analysts had expected tighter monetary policy
to combat inflation as the government prepares for euro adoption
by 2012. Analysts said that has changed.
On Wednesday, Polish central bankers said the policy easing
had limited the scope of their own tightening.
On Monday, Polish central bank's governor Slawomir Skrzypek
said the ongoing global financial crisis will have an impact on
monetary policy. He gave no further details but markets read his
statement as supporting doves on the bank's council.
Polish bonds ticked up slightly on Wednesday, while Czech
bonds slid after prices strengthened in recent weeks.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.596 24.589 -0.03% +7.17%
Polish zloty <EURPLN=> 3.466 3.414 -1.52% +3.74%
Hungarian forint <EURHUF=> 252.000 248.930 -1.23% +0.34%
Croatian kuna <EURHRK=> 7.133 7.131 -0.03% +2.64%
Romanian leu <EURRON=> 3.876 3.910 +0.87% -8.26%
Serbian dinar <EURRSD=> 80.482 80.120 -0.45% -2.19%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +26 basis points to 56bps over bmk*
5-yr T-bond CZ5YT=RR +21 basis points to +42bps over bmk*
10-yr T-bond CZ9YT=RR +34 basis points to +51bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -9 basis points to +288bps over bmk*
5-yr T-bond PL5YT=RR +10 basis points to +243bps over bmk*
10-yr T-bond PL10YT=RR +16 basis points to +228bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +32 basis points to +710bps over bmk*
5-yr T-bond HU5YT=RR +29 basis points to +668bps over bmk*
10-yr T-bond HU10YT=RR +30 basis points to +521bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1619 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus; Writing by Jason Hovet in
Prague and Dagmara Leszkowicz in Warsaw; Editing by Victoria
Main)
