* Hungary cbank raises rates, forint extends losses
* Euro pressure remains, CEE rate decisions eyed this week
* Romania govt survives no-confidence vote, markets steady
(Updates with Hungary's rate decision)
By Jason Hovet and Dagmara Leszkowicz
PRAGUE/WARSAW, Dec 20 (Reuters) - Hungary's forint extended
losses on Monday after the central bank raised rates for a
second month in a row, potentially putting further pressure on
the central bank's difficult relationship with the government.
Hungary's central bank raised its key base rate <NBHI> by a
quarter percentage point to 5.75 percent to defend its inflation
target and the bank's governor Andras Simor said the decision
was near unanimous. [] []
Several analysts saw the Hungary rate move as part of a
policy battle with the centre-right Fidesz government, whose
unorthodox fiscal policy has contributed to higher inflation
pressures and risk premiums, according to the central bank.
"Today's decision by the National Bank of Hungary to raise
interest rates will only add to rising tensions between the
central bank and the government," Neil Shearing, senior emerging
markets economist at Capital Economics wrote in a note.
Dealers back such a view, saying a decision itself had not
much impact on the forint.
"The forint strengthened beforehand (in the past days) as
the market started to talk about rate hikes but as the decision
appeared there was no positive reaction because politics weigh
on the unit heavily," said one Warsaw-based dealer.
The forint <EURHUF=> was 1.3 percent weaker by 1540 GMT,
extending its previous losses. The weakening euro took its toll
on other CEE currencies, with the Polish zloty <EURPLN=> down
0.4 percent and the Czech crown <EURCZK=> and Romania's leu
<EURRON=> both some 0.1 percent weaker.
Hungary's bonds also weakened, with bond yields rising 5-14
basis points across the curve.
A rate increase had been mostly priced in for the forint,
but dealers said some investors had second thoughts on Monday,
though they gave no reason for the change of view. Forward rate
markets have priced in 50 basis points of hikes over three
months.
The bank surprised in November with central Europe's first
policy tightening since the global economic crisis started two
years ago. The Polish and Czech central banks, meeting on rates
on Wednesday, are not expected to follow suit until next year.
NO CONFIDENCE TESTS
Romania's leu <EURRON=> was unmoved after the government
survived its third no-confidence vote this year. Bucharest's
main stock index BETI <> fell 0.3 percent, trimming some of
its previous losses.
A loss would have left a political vacuum just as the
country needs to pass important wage legislation and a 2011
budget to meet terms of its International Monetary Fund bailout.
"These motions send a negative signal to investors and
prolonged political instability will affect foreign
investments," said Melania Hancila, Volksbank's chief economist
in Bucharest.
The Czech centre-right government will face on Tuesday its
first no-confidence vote since taking power in July.
It holds a commanding majority in the lower house and
analysts expect it to survive, but a junior coalition member has
not officially supported the government yet. []
Dealers have said trade has thinned in the final weeks of
the year, which has at times exaggerated some moves. Central
European currencies have also been unable to break a correlation
with their reference currency, the euro, which has been
pressured by a debt crisis in the euro zone periphery.
Rate hike expectations had boosted the forint 2 percent this
month, helping it outperform peers. But analysts have said the
zloty and crown would provide more value going into 2011 based
on a better economic outlook and lower risk.
"Long PLN/CZK no longer looks attractive at these levels but
we continue to watch PLN/HUF for opportunities to buy," RBC said
in a note on Monday.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.24 25.228 -0.05% +4.27%
Polish zloty <EURPLN=> 3.997 3.98 -0.43% +2.68%
Hungarian forint <EURHUF=> 276.06 272.58 -1.26% -2.07%
Croatian kuna <EURHRK=> 7.383 7.379 -0.05% -1%
Romanian leu <EURRON=> 4.289 4.287 -0.05% -1.2%
Serbian dinar <EURRSD=> 106.3 106.22 -0.08% -9.8%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -1 basis points to 80bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +87bps over bmk*
10-yr T-bond CZ9YT=RR +4 basis points to +92bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +360bps over bmk*
5-yr T-bond PL5YT=RR 0 basis points to +339bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +296bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +16 basis points to +645bps over bmk*
5-yr T-bond HU5YT=RR +18 basis points to +578bps over bmk*
10-yr T-bond HU10YT=RR +10 basis points to +486bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1540 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; Editing
by Toby Chopra)
