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By Marius Zaharia and Sandor Peto
BUCHAREST/BUDAPEST, Nov 7 (Reuters) - Most Central European
currencies fell in jittery trade on Friday as concern over a
slowdown in their economies and the pace of convergence with the
euro zone returned after a sharp cut in Czech interest rates.
Sentiment was also soured by a downgrade by Moody's of its
rating for Hungary and Latvia and a reduction in its outlook for
Lithuania and Estonia. That underlined concerns that other
economies in the region may yet follow Hungary in seeking IMF
aid. [] []
The Czech bank slashed interest rates by 75 basis points on
Thursday, much more than expected. Polish central bank comments
triggered speculation that it may also cut soon to help the
economy as the global financial crisis hits growth prospects.
But the zloty<EURPLN=> erased early losses of around 1.5
percent to the euro in late trading after the Swiss National
Bank said it would cooperate with the Polish central bank to
provide Polish banks with Swiss franc liquidity.[]
It traded flat at 3.612 per euro at 1507 GMT.
"We expect that together with interest rate cuts in Poland
and the materialising economic slowdown, the zloty will be
weakening in the first quarter of 2009," Citibank Handlowy said
in a note.
Analysts and dealers said the prospect of looser monetary
policy and economic slowdown, coupled with uncertainty in global
markets, could cause further currency jitters in Central Europe.
At around 1507 GMT, the Czech crown <EURCZK=> was 1.04
percent weaker to the euro, trading at 25.143.
The Hungarian forint <EURHUF=> briefly dipped to below 270
against the euro after the Moody's downgrade, but by 1507 GMT it
recovered to 267.50, still 2.31 percent weaker from Thursday.
Analysts said the downgrade was belated, and would have no
lasting market impact as Hungary had announced spending cuts and
secured a $15.7 billion loan programme from the International
Monetary Fund (IMF).
But the price of the deal is expected to be recession next
year and further market volatility is expected. []
"Hungary's interest rate differential (high interest rates)
should have triggered a firming trend in the forint exchange
rate, but if bad news keeps coming and recession fears dominate
in the world, further volatility is likely and we have to wait
longer for forint firming," said Orsolya Nyeste of Erste Bank.
Serbia's dinar<EURRSD=>, after weeks of sharp falls, surged
3.37 percent to 84.23 to the euro, after repeated intervention
by the central bank and news that the country expected to reach
a deal with the IMF next week.[].
The Romanian leu <EURRON=> was driven by local commercial
flows as investors focus on other markets in the region, and
shed only 0.32 percent to 3.726 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.
Currencies in the region have had a roller-coaster week,
with the crown and the zloty losing more than 2 percent on
Thursday because of the Czech rate cut and appeals from Poland's
central bank chief for rate easing []
"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."
Bond markets remained sluggish with yields rising, and
traders said trade was likely to remain in tight ranges.
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=> 25.143 24.883 -1.04% +5.11%
Polish zloty <EURPLN=> 3.612 3.613 +0.03% -0.32%
Hungarian forint <EURHUF=> 267.400 261.350 -2.31% -5.75%
Croatian kuna <EURHRK=> 7.147 7.140 -0.10% +2.45%
Romanian leu <EURRON=> 3.726 3.714 -0.32% -4.07%
Serbian dinar <EURRSD=> 84.230 87.167 +3.37% -6.95%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +3 basis points to 132bps over bmk*
5-yr T-bond CZ5YT=RR -2 basis points to +143bps 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 +19 basis points to +406bps over bmk*
5-yr T-bond PL5YT=RR +22 basis points to +347bps 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 +60 basis points to +990bps over bmk*
5-yr T-bond HU5YT=RR +66 basis points to +917bps over bmk*
10-yr T-bond HU10YT=RR +31 basis points to +570bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1607 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 Patrick Graham)
