* Currencies weaken as risk appetite drops
* Poland's May inflation due at 1200 GMT
* Czech PPI posts record drop in May
(adds detail, fixed income)
By Marius Zaharia
BUCHAREST, June 15 (Reuters) - Central European currencies
fell on Monday, led by the Polish zloty, on a backdrop in risk
appetite while investors waited for May inflation in Poland, key
for the interest rate outlook.
On Monday, central banker Halina Wasilewska-Trenker said
inflation may have stood above the 3.8 percent expected by the
finance ministry and the central bank should refrain from
cutting rates this month [].
Polish deputy central bank Governor Witold Kozinski said on
Sunday June's rate decision was in balance as inflation remained
a concern [].
The central bank has cut rates by 225 basis points to 3.75
percent since November to offset the effects of a sharply
slowing economy, though it kept them on hold in April and May
due to high inflation and concerns over the zloty's weakness.
"Polish CPI will be the key release of the week," UniCredit
said in a note. "Due to an expected downward revision of the
inflation path the market is looking for a 25bp rate cut at the
June 24 meeting."
At 0936 GMT, the Polish zloty <EURPLN=> traded 0.9 percent
weaker on the day. The Hungarian forint <EURHUF=> was 0.8
percent lower, the Romanian leu <EURRON=> was down 0.4 percent,
while the Czech crown <EURCZK=> lost 0.6 percent.
"Investors are taking profits after last week's firming of
emerging assets and now the dollar is stronger, so the day does
not look good for the region," one dealer in Bucharest said.
In Czech Republic, producer prices showed a record annual
decline in May [], while retail sales fell less than
expected in April [].
LATVIA STILL IN FOCUS
Regional currencies were boosted for several days last week
by an easing of worries about a possible lat devaluation in
Latvia, but market watchers do not rule out a worsening again of
the Baltic state's economic headaches.
On Monday and Tuesday, markets will watch for a key vote in
Latvia's parliament on budget cuts aimed on securing additional
IMF support needed to avoid currency devaluation.
"An immediate devaluation of the lat is unlikely, but we
must not expect miracles either," Commerzbank said in a morning
note. "The consolidation measures will intensify the current
economic crisis."
Analysts said concerns about the health of central European
banks and financing hurdles, while most of the regional
economies are sinking, still pointed towards a more fragile
outlook compared with other emerging regions.
Central Europe's units have been mostly range-bound since
the end of April, when risk appetite has started to pick up,
showing lingering uncertainty will delay any recovery in the
region.
Debt markets ere started the week in a wait-and-see tone
ahead of the Polish inflation data.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.782 26.614 -0.63% -0.11%
Polish zloty <EURPLN=> 4.512 4.47 -0.93% -8.8%
Hungarian forint <EURHUF=> 279.27 277 -0.81% -5.63%
Croatian kuna <EURHRK=> 7.24 7.253 +0.18% +1.73%
Romanian leu <EURRON=> 4.21 4.194 -0.38% -4.65%
Serbian dinar <EURRSD=> 93.17 93.36 +0.2% -3.96%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +8 basis points to 130bps over bmk*
4-yr T-bond CZ4YT=RR +7 basis points to +149bps over bmk*
8-yr T-bond CZ8YT=RR +15 basis points to +260bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +12 basis points to +378bps over bmk*
5-yr T-bond PL5YT=RR +8 basis points to +308bps over bmk*
10-yr T-bond PL10YT=RR +10 basis points to +276bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +23 basis points to +797bps over bmk*
5-yr T-bond HU5YT=RR +29 basis points to +744bps over bmk*
10-yr T-bond HU10YT=RR +23 basis points to +669bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1236 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia;
Editing by Victoria Main)
