* Growing interest rate cut expectations hit region
* Latvia watched, Russia comments provide support
(Adds Polish cbanker, updates prices)
By Marius Zaharia and Jason Hovet
BUCHAREST/PRAGUE, June 16 (Reuters) - Hungary's forint led
central European currencies up on Tuesday on the back of a
weaker U.S. dollar, although growing expectations of further
interest rate cuts in the region subdued gains for peers.
In Poland, a moderate on the central bank's council, Andrzej
Slawinski, said interest rates may be cut further, but already
low rates were an obstacle to deeper easing. []
Czech central bank board member Robert Holman said he may
vote for a rate cut next week, although he generally preferred
rate stability. []
By 1245 GMT, the Hungarian forint <EURHUF=> rose to 279.24
to the euro, up 0.9 percent from Monday's domestic close.
The Czech crown <EURCZK=> added 0.4 percent, while the
Polish zloty <EURPLN=> bid 0.3 percent stronger and the Romanian
leu <EURRON=> was a touch weaker at 4.229.
"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."
Regional currencies recovered from lows hit earlier in the
session, after Russia's comments that the world needs new
reserve currencies weakened the dollar. []
Traders said markets were calmer after bouncing in the past
two weeks with worries over Latvia's battle to hold its currency
peg in place in the face of a sharply declining economy.
On Tuesday, the Baltic state's parliament was expected to
approve harsh spending cuts that will help release International
Monetary Fund and EU aid to prevent collapse. []
RATE VIEW
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 expect lower rates this summer.
Both countries have shaved more than 200 basis points from
key rates since last summer, bringing them to lows of 1.5
percent and 3.75 percent, respectively.
Bond yields were mixed on Tuesday, the Czech short-end a tad
stronger, dealers said.
Analysts expect a 50 basis point June rate cut in Romania,
but Hungary is expected to hold fire as inflation picks up and
worries remain over financial stability and forint weakness.
Central Europe's export-driven economies have crashed on
falling western demand following years of growth fuelled by
foreign investment and credit. Currencies have lost up to a
quarter of their value in the past year.
Poland and the Czech Republic are still seen better placed
to recover from the downturn, while Hungary and Romania have
joined Latvia in grabbing external aid.
The Czech central bank on Tuesday released stress tests
showing the banking sector, with high levels of savings and
little exposure to foreign currency borrowing, would hold up
under all projected scenarios. []
But the report showed the creeping pain to be felt next year
as joblessness rises and companies struggle to win back orders.
"The delay (in the peak) of bankruptcies and corporate and
household defaults could be 10 months after the low of the
economic cycle," said Raiffeisen Bank analyst Ales Michl.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 26.726 26.84 +0.43% +0.1%
Polish zloty <EURPLN=> 4.524 4.539 +0.33% -9.04%
Hungarian forint <EURHUF=> 279.24 281.68 +0.87% -5.62%
Croatian kuna <EURHRK=> 7.261 7.25 -0.15% +1.43%
Romanian leu <EURRON=> 4.229 4.221 -0.19% -5.07%
Serbian dinar <EURRSD=> 93.177 93.19 +0.01% -3.97%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR 0 basis points to 127bps over bmk*
4-yr T-bond CZ4YT=RR -11 basis points to +139bps over bmk*
8-yr T-bond CZ8YT=RR +8 basis points to +276bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1449 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia and
Jason Hovet; Editing by Stephen Nisbet/Victoria Main)
