(Adds updated records, Polish central banker comment)
PRAGUE, July 14 (Reuters) - The Czech crown and Polish zloty
inched up to new highs on Monday, extending record gains over
the past month that have spread to other regional currencies
helped by interest rate hike expectations.
The crown <EURCXZK=> hit a record 23.280 against the euro,
up from 23.425 at Friday's close.
The zloty <EURPLN=> firmed to a new high of 3.2540 to the
euro in the afternoon before pulling back to 3.2565 after the
central bank said it would not intervene to slow the currency's
appreciation. The zloty closed at 3.258 per euro on Friday.
"It's a continuation of the trend from the past few weeks
where we've seen strong outperformance from regional
currencies," said Martin Blum, head of emerging macroeconomic
research at Unicredit in Vienna.
The region's currencies have firmed in the past month to
record highs as risk averse investors sought alternatives to
usual high-return investments and the market bet central banks
would further combat inflation with interest rate hikes.
Blum said the region has been boosted by investors shifting
positions from what are perceived as more risky Asian assets.
"It's an ongoing reallocation," he said.
STAYING CLEAR
Central bankers have become increasingly concerned with the
impact of currency strength on economies that are already
slowing due to lower demand from western trade partners.
However, that strength has also helped combat price growth,
bringing about prospects for a pause in rate tightening, and
policymakers have stopped short of intervening in markets.
Poland's central bank Governor Slawomir Skrzypek said on
Monday his bank did "not expect to intervene on the foreign
exchange market".
The Czech currency has added 3.5 percent against the euro in
the past four weeks and 11.4 percent since Jan. 1. The zloty has
firmed 3.8 percent and 9.8 percent in the same periods.
The Slovak crown, which will be switched for euros on
January 1, 2009, has also gained 9.9 percent since the start of
the year, and traders say its steep appreciation has brought
regional neighbours' prospects for euro zone entry more to the
forefront, boosting investor interest.
"It is sort of a knee-jerk reaction," one trader with a
London bank said.
Hungary's forint <EURHUF=> has done better that the Czech
and Polish currencies, strengthening 6.3 percent in the past
month and 9.2 percent for the year. It traded near an all-time
high of 229.55 to the euro on Monday.
The Romanian leu <EURRON=> is up 2.4 percent in the past
month. It was at 3.57 per euro on Monday, near its 2008 high.
Analysts say there are still a chance for further interest
rate rises in the region due to demand-led inflationary
pressures. Data in the past week from the Czech Republic,
Slovakia, Hungary and Romania showed inflation in June was
nearing predicted peak levels but likely to remain elevated.
"The strength of the currencies, if it persists, will have an
impact," Societe Generale wrote in its weekly Emerging Weekly on
Friday. "Does it mean that the rate hike cycle has come to an
end in eastern Europe? We do not think so."
(Reporting by Jason Hovet and Dagmara Leszkowicz; Editing by
Ian Jones)
