(Updates prices, adds details, bylines)
By Dagmara Leszkowicz and Jason Hovet
WARSAW/PRAGUE, Feb 4 (Reuters) - Fleeing foreign investors
drove the Polish zloty to its lowest since June 2004 on
Wednesday, and central Europe's other currencies also sank under
the weight of recession fears and a collapse in fund flows.
The Hungarian forint hit a record low of 304 per euro in
volatile trade after breaking the psychological 300 level on
Tuesday, partially a result of investors the world over shunning
more risky assets.
The zloty <EURPLN=> led losses on Wednesday, dropping 1.7
percent to 4.676 to the euro by 1232 GMT, putting pressure on
bonds. The forint dipped 0.1 percent to 299.5. Both currencies
have lost around 12 percent already in 2009.
"The fate of the zloty is definitely in the hands of foreign
investors as domestic ones are completely inactive," a
Warsaw-based dealer said.
Steep manufacturing drops are signalling a rough landing for
the region's export-heavy economies. That has spooked investors
who, buffeted by other emerging markets news including a
sovereign rating cut for Russia by agency Fitch, have
accelerated the outflow of funds from the region.
Rate setters have loosened policy -- Romania cut by 25 basis
points to 10 percent on Wednesday -- eliminating some of the
premium of the higher-yielding assets, which analysts warn could
lead to a collapse in currencies. []
The zloty has lost 28.2 percent and the forint 21.7 percent
since mid-2008 -- a stark reversal from the all-time highs
central European currencies traded at in the summer.
Despite the sharp depreciation, Poland's central bank
governor said there was no need to prop up the currency.
"We are in consultations on the issue (of forex
intervention) with the Monetary Policy Council but it seems
there's no need to intervene for now," he said. []
Policymakers have slashed growth forecasts as demand from a
recession-hit euro zone wanes, and some analysts say no central
European economy will avoid recession in 2009.
High current account deficits, along with large levels of
foreign currency borrowing in preceding boom years, have
complicated the situation for countries like Hungary and
Romania, and to some extent Poland, and some market watchers
have warned of an acceleration in the unwinding of investments.
"In both (Hungary and Poland), high degrees of
foreign-currency denominated debt make the real economic
situation worse," Ulrich Leuchtmann, head of foreign exchange
research at Commerzbank in Frankfurt, wrote on Wednesday.
"This way, both countries have an additional driver of a
devaluation spiral."
NEW PRESSURES
Ratings agency Moody's said on Wednesday it was comfortable
with Hungary's A3 debt status at the moment, but the country's
economic outlook and large foreign currency denominated private
debt posed a risk. []
On Monday, a Standard & Poor's official said forint losses
raise the credit risk of Hungary's banks.
Fitch cut emerging market giant Russia's rating to BBB from
BBB+ on Wednesday, adding to emerging Europe woes as the move
puts pressure on the region's reference currency, the euro.
In Romania, the leu <EURRON=> was down 0.3 percent at 4.31
to the euro, after the central bank cut interest rates for the
first time in 19 months on Wednesday.
The Czech crown <EURCZK=> dipped to 28.5 to the euro before
a rate decision on Thursday, with expectations of a half
percentage point cut that will bring the main rate equal to its
historic low of 1.75 percent.
But dealers said currency weakness could prove an obstacle
to future moves. The crown has shed 6.1 percent in 2009, while
the leu is off 6.9 percent.
Komercni Banka fixed income trader Dalimil Vyskovsky said
the crown is likely weaker than central bank forecasts.
"This suggests future rate cuts could be smaller than
previously expected and that we might be slightly overdone again
on the 2-3Y (IRS) segment," he said.
The Czechs have sliced 150 basis points from its main rate
since August. On Wednesday, yields on Czech bonds ticked
slightly lower.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 28.49 28.477 -0.05% -6.1%
Polish zloty <EURPLN=> 4.676 4.598 -1.67% -12%
Hungarian forint <EURHUF=> 299.46 299.24 -0.07% -11.99%
Croatian kuna <EURHRK=> 7.39 7.381 -0.12% -0.34%
Romanian leu <EURRON=> 4.313 4.299 -0.32% -6.92%
Serbian dinar <EURRSD=> 92.521 94.24 +1.86% -3.29%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 98bps over bmk*
4-yr T-bond CZ4YT=RR -9 basis points to +95bps over bmk*
8-yr T-bond CZ8YT=RR -4 basis points to +115bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +374bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +248bps over bmk*
10-yr T-bond PL10YT=RR -2 basis points to +249bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +3 basis points to +928bps over bmk*
5-yr T-bond HU5YT=RR +9 basis points to +879bps over bmk*
10-yr T-bond HU10YT=RR +13 basis points to +683bps over bmk*
*Benchmark is German bond equivalent.
All currency data taken from Reuters at 1336 CET.
All bond data taken from Reuters at 0930 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Dagmara Leszkowicz;
editing by David Stamp and Victoria Main)
