* Polish rate hike expectations support region's FX
* Inflation data due up, higher reading can give boost
* Crown at late-2008 high, dampens Czech rate outlook
* Poland tapping euro bond issue, to price this week
(Adds Hungary auction, Polish Eurobond reopen)
By Jason Hovet
PRAGUE, Jan 13 (Reuters) - A rally in Central European
currencies paused on Thursday with a dip in stocks, with
analysts watching Polish inflation data for signs the central
bank might raise interest rates as early as next week.
After comments from a number of policymakers, a Reuters poll
this week showed 17 of 29 analysts expect a Polish rate hike
next Wednesday, a shift from earlier this month, when only two
of 21 analysts polled forecast a January rise. []
The zloty has shot to a nine-month high in response, also
boosting its regional peers, while improving economic data has
supported currencies that are already between 1 and 3 percent
higher in 2011.
The zloty <EURPLN=> led a retreat on Thursday, dropping half
a percent to the weak side of 3.85 to the euro by 1050 GMT. The
Czech crown <EURCZK=> dipped 0.2 percent to 24.355 per euro, off
a more-than two-year high hit late in Wednesday's session.
The Hungarian forint <EURHUF=> and Romanian leu <EURRON=>
held steady, moving less than 0.1 percent. Dealers said the
forint was stuck on the weaker side of the 275 per euro level.
Stocks in the region lost up to 0.3 percent. The euro, the
region's reference currency, dipped after a rally following a
successful Portuguese bond auction on Wednesday, with concerns
about a debt crisis continuing to weigh.
Polish inflation <ECONPL> at 1300 GMT is forecast at 3.1
percent year-on-year -- well above the central bank's 2.5
percent target. A higher figure would feed expectations of a
rise in rates and support the zloty.
"Should the inflation rate exceed market expectations today,
the market will be targeting the next support level at 3.8238,"
Commerzbank said.
That is close to the zloty's 2010 high. The Polish currency
passed 3.85 this week -- the level at which the central bank
surprised markets last April by intervening for the first time
since introducing a free float in 2000.
In a further test for Polish debt, the country announced a
tap of its 4 percent, March 2021 euro-denominated bond
<0#PL054388209=>, to be priced this week. Local bonds were
unmoved by the news.
CZECH, HUNGARIAN RATES ADJUST
A Polish rate rise would follow Hungary, which has raised
rates by 50 basis points in two moves since November. Hungarian
central bank minutes on Wednesday showed divisions and increased
uncertainty about a decision later this month. []
Hungarian bonds were steady on Thursday. The debt agency
sold 55 billion forints in bonds in three different maturities,
with the yield on the five-year bond down and tracking a drop in
yields in secondary markets. [] <HUISSUE>
Czech forward markets price in a rate hike in six months.
Central bank board member Pavel Rezabek said on Wednesday a
rise in Czech inflation at the end of 2010 may prompt the
central bank to hike borrowing costs sooner than late-2011, as
the bank's forecast suggests. []
Short-dated interest rate swaps rose on the comments.
Komercni Banka, which this week recommended receiving a
two-year Czech interest rate swap <CZKAM6PR2Y=> against paying
six-month PRIBOR <CZK6MD=>, said in a daily trading note that
expectations still looked excessive. []
"With the crown the strongest since late 2008, it seems to
be pretty much unrealistic to expect a rate hike now," it said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.355 24.318 -0.15% +2.65%
Polish zloty <EURPLN=> 3.858 3.838 -0.52% +2.59%
Hungarian forint <EURHUF=> 275.1 275.33 +0.08% +1.05%
Croatian kuna <EURHRK=> 7.4 7.398 -0.03% -0.27%
Romanian leu <EURRON=> 4.258 4.251 -0.16% -0.59%
Serbian dinar <EURRSD=> 105.28 105.32 +0.04% +0.61%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +1 basis points to 79bps over bmk*
7-yr T-bond CZ7YT=RR +3 basis points to +91bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +94bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -5 basis points to +628bps over bmk*
5-yr T-bond HU5YT=RR -6 basis points to +576bps over bmk*
10-yr T-bond HU10YT=RR -5 basis points to +480bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1152 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet; editing
by Catherine Evans)
