* Currencies retreat as risk aversion rises
* Poland starts two-day rate-setting meeting
* IMF brings focus back to Latvia's economic pain
By Marius Zaharia
BUCHAREST, June 23 (Reuters) - Central European currencies
weakened slightly on Tuesday when worries revived over Latvia's
chances of avoiding a devaluation, and investors pulled back
from trades favouring the Czech crown over the zloty.
Pessimism over Poland's budget and a safe-haven attitude
towards the less indebted Czech economy hit the zloty and drove
the crown to near a 2009 high against the euro on Monday.
The crown also climbed to an all-time high against the zloty
in indicative pricing and forced investors to shut down long
zloty/crown positions they had taken through euro trades.
But doubts about the potential for global economic recovery
encouraged profit taking on the crown's rally, while IMF
comments that Latvia's economy was in a worse shape than
expected raised concerns the lat would have to be devalued in
the longer run.
By 0841 GMT, the crown fell 0.2 percent against the euro,
while the Hungarian forint <EURHUF=> dropped 0.7 percent and the
Polish zloty <EURPLN=> was down 0.15 percent, and Romania's leu
<EURRON=> 0.07 percent.
The zloty was bid at 5.7368 <PLNCZK=REU> crowns at 0840 GMT,
according to Reuters calculations.
The IMF comments were "a reminder that it is not a done deal
that Latvia will automatically receive the next tranche of its
IMF loan and we would certainly not rule out renewed fears over
the situation in Latvia developing in the coming days," Danske
Bank said in a research note.
Latvia devaluation fears surged earlier this month, but
eased slightly last week as the Baltic state agreed key budget
cuts designed to secure more IMF aid.
In Poland, the Monetary Policy Council starts a two-day
rate-setting meeting on Tuesday. Analysts expect a 25 basis
points cut to 3.5 percent.
Hungary held rates steady at 9.5 percent as expected on
Monday, keeping the forint's higher yield [].
Analysts expect Hungary to become the economy with the
highest interest rates in the European Union next week, when
Romania is expected to chop 50 basis points off its benchmark
rate, now similar to its western neighbour's.
Czech Republic is also expected to cut a quarter-point off
its 1.5 percent interest rate on Thursday.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.097 26.046 -0.2% +2.51%
Polish zloty <EURPLN=> 4.551 4.544 -0.15% -9.58%
Hungarian forint <EURHUF=> 282.49 280.5 -0.7% -6.7%
Croatian kuna <EURHRK=> 7.27 7.27 0% +1.31%
Romanian leu <EURRON=> 4.23 4.227 -0.07% -5.1%
Serbian dinar <EURRSD=> 93.037 93.16 +0.13% -3.82%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -16 basis points to 134bps over bmk*
4-yr T-bond CZ4YT=RR -20 basis points to +158bps over bmk*
8-yr T-bond CZ8YT=RR +9 basis points to +289bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1042 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus, Writing by Marius Zaharia,
Editing by Mike Winfrey/Ruth Pitchford)
