(Recasts first 11 paras with new comments, prices.)
By Marius Zaharia and Sandor Peto
BUCHAREST/BUDAPEST, Nov 7 (Reuters) - Central European
currencies fell on Friday as concern over a slowdown in economic
growth and the pace of convergence with the euro zone returned
following Thursday's rate cut by the Czech central bank.
The Czech bank slashed interest rates by 75 basis points,
much more than expected.
Polish central bank comments triggered speculation that it
may also cut rates to help the economy as the global financial
crisis hits growth prospects.
At around 1251 GMT, the Czech crown <EURCZK=> was 1.21
percent weaker to the euro, trading at 25.184.
The Polish zloty <EURPLN=> and the Hungarian forint
<EURHUF=> lost 1.52 percent and 1.21 percent, respectively, to
trade at 3.668 per euro and 266.5 per euro. The Romanian leu
<EURRON=> was down 0.35 percent to 3.727 to the euro.
The Czech rate cut "led to a reassessment of monetary policy
in the Czech Republic and the rest of the region," said Ulrich
Leuchtmann, head of foreign exchange research at Commerzbank in
Frankfurt, adding that concern over Poland's euro convergence
may also contribute to the zloty's weakness.
One London-based strategist said U.S. payroll data to be
published later, which can affect global risk appetite, added to
nerves in central European markets.
"Poland may be the worst -- but the gap is not large --
because of talk the central bank may decide to make an emergency
rate cut... An emergency rate cut in Poland is quite unlikely
but we are definitely heading towards rate cuts in the next few
months as the economy slows," the strategist said.
The forint fell even though the International Monetary Fund
approved a $15.7 billion loan programme to Hungary late on
Thursday to help the country end concerns over its external
imbalances and debt refinancing.
The price of the rescue package is deep state spending cuts
and investors attention is turning towards the economic impacts
as Hungary is already one of the region's laggards in economic
growth terms.
"The IMF expects GDP to contract by 1 percent in 2009, but
we would not be surprised to see an even greater slump," said
Neil Shearing, analyst at Capital Economics in a note.
Central European currencies were involved in roller-coaster
trade this week, with the crown and the zloty losing more than 2
percent on Thursday because of the Czech rate cut and comments
from the Polish central bank governor, who said there were more
reasons to start an easing cycle.
"The crown will remain under significant pressure until the
end of the year due to aggressive steps of the Czech central
bank," CSOB bank said in a research note. "We don't rule out the
crown will go up again over 26 per euro in the near future."
Expectations for an economic slowdown, stemming from the
global credit crunch and fears of recession in the euro zone,
started to loom in Poland as well.
"We believe signs of a slowdown will intensify in upcoming
months. An important argument also is the tightening of credit
possibilities, which could limit economic activity in Poland,"
BRE bank said in a note to clients.
Elsewhere, Serbia's dinar rebounded, to trade firmer by 0.46
percent at 86.767 against he euro, after repeated market
intervention by the central bank to combat concerns about the
country's external financing.
Central banks in the euro zone, Britain and Switzerland also
made deep interest rate cuts this week in response to worsening
growth outlooks.
In bond markets, trading remained sluggish with yields
rising slightly, and traders said range trading was likely to
continue.
"Yields rose but there is no big pressure, bids are
disappearing, and when yields go into the opposite direction,
offers disappear, with the market staying in a 70-80 basis point
range," one trader in Hungary said.
The Czech central said on Friday it was looking for measures
to boost the bond market.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 25.184 24.883 -1.21% +4.96%
Polish zloty <EURPLN=> 3.668 3.613 -1.52% -1.87%
Hungarian forint <EURHUF=> 266.500 261.350 -1.97% -5.4%
Croatian kuna <EURHRK=> 7.139 7.140 +0.01% +2.56%
Romanian leu <EURRON=> 3.727 3.714 -0.35% -4.10%
Serbian dinar <EURRSD=> 86.767 87.167 +0.46% -10.17%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +3 basis points to 133bps over bmk*
5-yr T-bond CZ5YT=RR -9 basis points to +136bps over bmk*
10-yr T-bond CZ9YT=RR -3 basis points to +88bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +11 basis points to +397bps over bmk*
5-yr T-bond PL5YT=RR +10 basis points to +336bps over bmk*
10-yr T-bond PL10YT=RR +5 basis points to +260bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +38 basis points to +967bps over bmk*
5-yr T-bond HU5YT=RR +66 basis points to +918bps over bmk*
10-yr T-bond HU10YT=RR +1 basis points to +540bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1351 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Sandor Peto/Marius
Zaharia; Editing by Andy Bruce)
