(Updates with Polish rate cut)
By Jason Hovet and Marius Zaharia
PRAGUE/BUCHAREST, Jan 27 (Reuters) - The Polish zloty was
little changed by a deeper than expected cut in interest rates
on Tuesday, moving in line with its regional peers, which lost
part of this week's gains to the euro as European shares fell.
Poland's central bank cut its benchmark rate by 75 basis
points to 4.25 percent, more than the forecast 50 bps, as it
battles a sharp economic downturn [] [].
The zloty <EURPLN=> was flat from Monday levels at 4.369 to
the euro, after weakening beyond 4.40 for the first time since
September 2004 last week.
It traded stronger in the first part of the day, but at 1418
GMT it was unchanged from levels before the rate decision.
Dealers said many in the market had been moving toward a second
successive 75 basis point cut in recent days.
Monetary easing lowers the premium investors get for holding
zloty assets, but dealers said the market would view the boost
to the economy of another reduction as a positive sign.
"It is good that the council cut rates so sharply," said
Jacek Wisniewski, chief economist at Raiffeisen Bank. "Rates are
likely to fall to around 3 percent. Postponing the decision (to
cut aggressively) is pointless in such economic conditions."
Currencies rose on Monday from last week's lows helped by a
partial recovery for global stocks and risk appetite, but they
are still sharply down from the start of the year after a month
in which the economic outlook for the region has darkened.
The firming trend continued for the first part of Tuesday's
session, but currencies started to lose some ground later in the
day as European shares bucked the global trend, falling on
profit-taking [].
Romania's leu <EURRON=> was 0.2 percent higher, while the
Hungarian forint <EURHUF=> edged down 0.1 percent to 285.62 per
euro -- after hitting an all-time low above 288 on Friday. The
Czech crown <EURCZK=> rose 0.25 percent.
"Currencies are still strong, but not as strong as they were
in the morning because of a slump in European shares," one
Bucharest dealer said.
But analysts expect regional currencies to resume weakening
as interest rates come down along with economies suffering from
a slump in exports to the recession-hit euro zone.
The EBRD sees growth in central Europe and the Baltics at
0.4 percent this year from 3.9 percent last year [].
Markets expect central banks across the ex-communist region
to continue to cut interest rates in response.
Hungary has already taken back two-thirds of an October
emergency 300 basis point hike. Romania, seen as one of the
region's more vulnerable economies, is seen joining the
loosening trend next week as well.
Economists have warned the Czech economy could also contract
in 2009, and the central bank has cut interest rates by 150
basis points since August and is expected to cut another 50
basis points next week.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 27.626 27.695 +0.25% -3.16%
Polish zloty <EURPLN=> 4.369 4.37 +0.02% -5.81%
Hungarian forint <EURHUF=> 285.62 285.28 -0.12% -7.73%
Croatian kuna <EURHRK=> 7.35 7.4 +0.68% +0.2%
Romanian leu <EURRON=> 4.217 4.226 +0.21% -4.8%
Serbian dinar <EURRSD=> 95.54 95.526 -0.01% -6.34%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -27 basis points to 80bps over bmk*
4-yr T-bond CZ4YT=RR -1 basis points to +81bps over bmk*
8-yr T-bond CZ8YT=RR +6 basis points to +106bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +310bps over bmk*
5-yr T-bond PL5YT=RR -4 basis points to +253bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +236bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -13 basis points to +763bps over bmk*
5-yr T-bond HU5YT=RR -12 basis points to +715bps over bmk*
10-yr T-bond HU10YT=RR -3 basis points to +549bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1518 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet and
Marius Zaharia; editing by Patrick Graham)
