* Poland leaves key rate on hold at 3.75 pct, zloty falls
* Forint recoups some losses as markets digest fiscal plan
* Czech markets price rate hike for middle of year
(Adds Polish rate decision, updates markets)
By Krisztina Than and Marton Dunai
BUDAPEST, March 2 (Reuters) - Poland's zloty weakened on
Wednesday after the central bank left interest rates on hold,
while Hungary's forint recouped some of its losses despite
lingering doubts over the government's planned fiscal reforms.
Poland's central bank left its main interest rate
<PLINTR=ECI> flat at 3.75 percent on Wednesday, as forecast by a
narrow majority of analysts in a Reuters poll.[]
The bank will release a statement and hold a news conference
explaining its decision at 1500 GMT.
By 1200 GMT the Polish zloty <EURPLN=> traded 0.1 percent
down from late Tuesday, underperforming the rest of the region
where the Hungarian forint <EURHUF=> gained 0.3 percent and the
Czech crown <EURCZK=> was up 0.25 percent.
The zloty shed 0.4 percent against the euro immediately
after the rate decision.
The Romanian leu <EURRON=> was flat.
Some analysts said Polish central bank's decision to leave
rates on hold at its meeting on Wednesday had increased the
likelihood of a rate hike next month.
"The lack of a rate increase in March means expectations for
an interest rate hike in April will increase," said Jaroslaw
Janecki, chief economist at Societe Generale in Warsaw. "But the
strategy of moderate hikes may be ineffective in terms of
growing inflationary expectations and an undervalued zloty."
Dealers had expected the zloty to weaken if rates were kept
unchanged.
"Even though the market is pricing in no change (this
month), the decision to leave rates flat is negative and there
is a chance the zloty may top 4.0 to the euro," said Karol
Zaluski, chief dealer at ING in Warsaw, before the decision.
Data showed earlier in the day that Polish economic growth
<PLGDP=ECI> picked up to 4.4 percent in the fourth quarter of
2010 as forecast, helped by strong domestic demand.
[]
HUNGARY PACKAGE SEEN SOFT
Investors in Hungary continued to digest government fiscal
plans announced the previous day, which were seen as lacking
much of the detail the market had counted on.
Dealers said they expected rangebound trading after
Hungarian assets fell on Tuesday in response to the plan.
"We can't really sell a bull story to investors as this
package is not muscular enough for that," one dealer said. "But
there's no bear story either as nobody in their right mind
expects a (Hungary) rating downgrade to junk."
Budapest bonds were flat. Stocks <> fell 0.8 percent by
1056 GMT, dragged lower by leading blue chip OTP Bank <OTPB.BU>,
which dropped 1.9 percent on government plans for an extension
of a windfall bank tax after 2011.
Hungary's economy minister said on Tuesday the government
would improve the budget balance by 900 billion forints ($4.56
billion) by 2013, and cut public debt to 65-70 percent of GDP by
2014 from 80 percent now. []
While analysts said the direction of the measures was
positive, many of them said important details were still lacking
and execution of the plan would be closely watched.
"Clearly, the fact that the Hungarian government is actively
addressing the longer-term fiscal issues is a positive and has
also likely alleviated the risk of a downgrade to non-investment
grade status ... in the short term," Barclays said in a note.
How the measures will be implemented remains an open
question ahead of the 2014 elections, the bank added.
Czech rates have fallen around 10 basis points on the long
end of the yield curve in the past three weeks since the latest
inflation reading came in well below expectations. <CZKFRA>
<>
Forward rate agreement (FRA) markets are pricing in a first
rate hike by the middle of the year in Prague. Central bank
chief Miroslav Singer said inflationary pressures were still
weak. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.26 24.321 +0.25% +3.05%
Polish zloty <EURPLN=> 3.977 3.974 -0.08% -0.48%
Hungarian forint <EURHUF=> 271.52 272.4 +0.32% +2.38%
Croatian kuna <EURHRK=> 7.419 7.419 0% -0.53%
Romanian leu <EURRON=> 4.203 4.203 0% +0.71%
Serbian dinar <EURRSD=> 103.79 103.4 -0.38% +2.06%
All data taken from Reuters at 1258 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -12 basis points to -18bps over bmk*
7-yr T-bond CZ7YT=RR -6 basis points to +77bps over bmk*
10-yr T-bond CZ9YT=RR -6 basis points to +66bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +352bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +342bps over bmk*
10-yr T-bond PL10YT=RR -3 basis points to +304bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -2 basis points to +500bps over bmk*
5-yr T-bond HU5YT=RR +2 basis points to +465bps over bmk*
10-yr T-bond HU10YT=RR -6 basis points to +407bps over bmk*
*Benchmark is German bond equivalent.
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(Reporting by Krisztina Than/Marton Dunai; Editing by Catherine
Evans)
