* Growing interest rate cut expectations hit region
* Latvia PM sure of more IMF help
* Russia comments provide support
(adds detail, quotes, fixed income)
By Marius Zaharia
BUCHAREST, June 16 (Reuters) - Central European currencies
were rangebound on Tuesday, with expectations of further
interest rate cuts in some of the region's biggest economies
restraining the impact of an easing in Latvia's currency crisis.
Regional currencies recovered from lows hit earlier in the
session, after Russia's comments that the world needs new
reserve currencies weakened the dollar.
At 0945 GMT, the Hungarian forint <EURHUF=> and the Polish
zloty <EURPLN=> traded 0.4 percent stronger, and the Czech crown
<EURCZK=> was up 0.1 percent, while the Romanian leu <EURRON=>
was a touch weaker.
"Usually when the dollar weakens, the region rallies,
currencies jump by around 1 percent," one dealer said. "But with
rate cuts ahead, a rally is unlikely."
Poland posted a surprise fall in May annual inflation
[] on Monday which boosted chances for a cut next
week, while in the Czech Republic more analysts now expect lower
rates moving into the summer months, especially after producer
prices showed a record drop in May [].
Analysts expect a 50 basis point June rate cut in Romania as
well, while Hungary is expected to hold fire as inflation picked
up and the central bank worries about financial stability and
forint weakness.
On Tuesday, Czech central bank board member Robert Holman
said he may vote for a rate cut next week, although he generally
preferred rate stability [].
His comments came after the bank published its stability
report, in which stress tests showed Czech banks would withstand
shocks in all projected scenarios. []
Czech banks, with higher levels of savings and little
exposure to foreign currency lending, have held up better in the
economic crisis, but analysts said the central bank's report
showed the creeping pain to be felt in the coming year.
"The bigger challenge for banking will be in 2010, not this
year," said Raiffeisen Bank analyst Ales Michl. "The delay (in
the peak) of bankruptcies and corporate and household defaults
could be 10 months after the low of the economic cycle."
LATVIA WORRIES EASE
Regional currencies have been boosted since last week by an
easing of worries about a possible devaluation in Latvia, but
market watchers do not rule out a worsening again of the Baltic
state's economic hurdles in the longer run.
On Tuesday, investors were watching for a key vote in
Latvia's parliament on budget cuts aimed at securing a further
tranche of IMF support, needed to avoid currency devaluation.
"(We) do still see some scope for a successful passage of
Latvian budget cuts in parliament today to be taken as a
moderate market positive," UniCredit said in a note.
Latvia's prime minister Valdis Dombrovskis said on Monday he
was sure his country would get further loans to help avoid state
bankruptcy and devaluation. [].
On the fixed income market, Polish debt was still gaining
support at the short-end of the curve from Monday's inflation
data, while Hungarian bonds were rangebound.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.802 26.84 +0.14% -0.18%
Polish zloty <EURPLN=> 4.522 4.539 +0.38% -9%
Hungarian forint <EURHUF=> 280.55 281.68 +0.4% -6.06%
Croatian kuna <EURHRK=> 7.265 7.25 -0.21% +1.38%
Romanian leu <EURRON=> 4.228 4.221 -0.17% -5.05%
Serbian dinar <EURRSD=> 93.06 93.19 +0.14% -3.85%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -4 basis points to 123bps over bmk*
4-yr T-bond CZ4YT=RR -2 basis points to +149bps over bmk*
8-yr T-bond CZ8YT=RR +9 basis points to +277bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +375bps over bmk*
5-yr T-bond PL5YT=RR +8 basis points to +318bps over bmk*
10-yr T-bond PL10YT=RR 0 basis points to +280bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +16 basis points to +817bps over bmk*
5-yr T-bond HU5YT=RR +23 basis points to +774bps over bmk*
10-yr T-bond HU10YT=RR +15 basis points to +693bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1245 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 Stephen Nisbet)
