* Polish zloty leads losses as risk appetite drops
* Poland's May inflation below fcast, rate cuts seen
* Czech PPI posts record drop in May
(Adds Polish inflation, quotes, detail)
By Marius Zaharia
BUCHAREST, June 15 (Reuters) - Central European currencies
weakened on Monday, hit by falling risk appetite, with the
Polish zloty leading losses as lower than expected May inflation
increased chances for a further rate cut next week.
Polish annual inflation <PLCPIY=ECI> stood at 3.6 percent in
May, down from 4 percent in April and compared with a 3.8
percent forecast. []
The Polish 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.
"What we see is a moderate downtrend," said Ulrich
Leuchtmann of Commerzbank. "We can say that the central bank is
likely to keep an easing stance for the time being as it still
has a room for further rate cuts."
At 1238 GMT, the Polish zloty <EURPLN=> traded 1.3 percent
weaker on the day. The Hungarian forint <EURHUF=> was 1 percent
lower, the Romanian leu <EURRON=> was down 0.6 percent, while
the Czech crown <EURCZK=> lost 0.8 percent.
Polish bond yields dropped 3 basis points across the curve
immediately after the inflation data was released.
Other regional debt markets were very quiet on Monday, with
Hungarian and Czech yields little moved from Friday.
Currencies also suffered from fading risk appetite globally
as investors rushed to book profits in emerging assets after
last week's gains and the dollar strengthened.
In the Czech Republic, producer prices showed a record
annual decline in May [], while retail sales fell
less than expected in April []. Some analysts said
Czech PPI may be an argument for the central bank to cut rates
even more.
"We have a basic scenario that interest rates will not
change (this month) but today's numbers are showing that the
probability of a reduction is rising," said Jan Vejmelek of
Komercni Banka.
Czech rates stand at 1.5 percent, while Hungary's and
Romania's are at 9.5 percent.
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 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 started to pick up, showing
that lingering uncertainty will delay any recovery in the
region.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.828 26.614 -0.8% -0.28%
Polish zloty <EURPLN=> 4.528 4.47 -1.28% -9.12%
Hungarian forint <EURHUF=> 279.83 277 -1.01% -5.82%
Croatian kuna <EURHRK=> 7.251 7.253 +0.03% +1.57%
Romanian leu <EURRON=> 4.219 4.194 -0.59% -4.85%
Serbian dinar <EURRSD=> 92.95 93.36 +0.44% -3.73%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +3 basis points to 125bps over bmk*
4-yr T-bond CZ4YT=RR +6 basis points to +148bps 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 +8 basis points to +374bps over bmk*
5-yr T-bond PL5YT=RR +8 basis points to +308bps over bmk*
10-yr T-bond PL10YT=RR +9 basis points to +275bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +26 basis points to +800bps over bmk*
5-yr T-bond HU5YT=RR +29 basis points to +744bps over bmk*
10-yr T-bond HU10YT=RR +22 basis points to +668bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1538 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 ...)
