* FX hold Monday's gains after Hungary's small rate cut
* Polish rates seen flat, Romania govt seen getting approval
(Adds fixed income, detail, quotes)
By Marius Zaharia
BUCHAREST, Dec 22 (Reuters) - Central European currencies
held on to the previous session's gains on Tuesday in thin
trade, eyeing a Polish rate decision and a confidence vote for
Romania's government on Wednesday.
Markets expect rates to remain unchanged in Poland, after a
smaller than expected rate cut in Hungary on Monday,
[] and see a cabinet unveiled by Romania's
designated Prime Minister Emil Boc on Sunday getting parliament
approval.
Dealers expect currencies to move in tight correlation with
core markets, although low liquidity due to the holiday season
may exacerbate moves.
At 1038 GMT, Poland's zloty <EURPLN=> was up 0.36 percent on
the day, Hungary's forint <EURHUF=> was 0.14 percent stronger,
while the Romanian leu <EURRON=> was 0.2 percent weaker.
"Liquidity is quite low, which means the currency can easily
produce bigger swings back and forth thanks to orders by just
one or two players," a currency dealer in Budapest said.
"Fundamentally the outlook has not changed much since yesterday,
the rate decision was marginally supportive for the forint."
In Czech Republic, the crown <EURCZK=> was slightly weaker,
as policymakers said on Monday the country's alignment with the
euro zone worsened in the economic crisis and Czechs should not
set an entry target date for now. []
Meanwhile, Standard and Poor's affirmed the Czech sovereign
rating at 'A', keeping a stable outlook, despite a worsening
budget. [].
WATCHING RATES
Turnover in bond market was very low and yields were little
changed from their Monday closing levels, despite Hungary's
surprise rate cut by 25 basis points to 6.25 percent, after four
successive half percentage point cuts in the past four months
and a 100 basis points cut in July.
The move signalled caution after a recent weakening of the
forint and uncertainties about the 2010 budget outlook,
particularly in view of elections in April or May next year.
Elsewhere, Romania is expected to resume its monetary easing
cycle once its deal with the International Monetary Fund is
brought back on track and Poland is widely expected to leave
interest rates unchanged well into 2010. []
"Polish interest rates should rise no sooner than late next
year," said Koon Chow, currency strategist at Barclays Capital
in London. "The zloty should, however, gain due to positive
investor sentiment for other emerging markets and the fact that
it is still undervalued."
Monetary easing is expected to have come to an end in the
Czech Republic as well, after the central bank surprisingly
cut rates to a new record low of 1 percent last week.
[]
Markets are readying for Romania's confidence vote on
Wednesday [], hopeful it will show a months-long
political deadlock is nearing an end. Approval looks all but
guaranteed since Boc's coalition has five votes more than the
236-seat majority needed.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.284 26.244 -0.15% +1.78%
Polish zloty <EURPLN=> 4.182 4.197 +0.36% -1.6%
Hungarian forint <EURHUF=> 273.96 274.34 +0.14% -3.8%
Croatian kuna <EURHRK=> 7.285 7.285 0% +1.1%
Romanian leu <EURRON=> 4.224 4.215 -0.21% -4.96%
Serbian dinar <EURRSD=> 96.44 96.09 -0.36% -7.22%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -2 basis points to 76bps over bmk*
7-yr T-bond CZ7YT=RR -3 basis points to +88bps over bmk*
10-yr T-bond CZ10YT=RR -2 basis points to +79bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +391bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +366bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +303bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -2 basis points to +585bps over bmk*
5-yr T-bond HU5YT=RR -2 basis points to +536bps over bmk*
10-yr T-bond HU10YT=RR -4 basis points to +471bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1238 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaux, Writing by Marius Zaharia,
Editing by Ruth Pitchford)
