* 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
(Updates with Polish cbank presser)
By Marton Dunai and Jason Hovet
BUDAPEST/PRAGUE, March 2 (Reuters) - Poland's zloty weakened
on Wednesday after the central bank left interest rates on hold,
surprising many investors who had bet on a rise, while Hungary's
forint recouped its losses as markets digested the country's
reform plans.
Poland's central bank left its main interest rate flat at
3.75 percent on Wednesday, as forecast by a narrow majority of
analysts in a Reuters poll, after hiking rates in January for
the first time since the financial crisis. []
[]
With markets split ahead of the decision, the zloty fell by
as much as half a percent before recovering some ground when the
central bank reiterated its hawkish stance and Governor Marek
Belka said the January rate hike had been the start of a cycle.
[]
Markets are still pricing in up to 100 basis points in hikes
this year, and analysts said expectations for a Polish rate hike
at the next meeting would increase after Wednesday's decision.
The zloty has also weakened since the January rate hike, hit
not only by more risk-averse markets nervous about the euro zone
debt crisis and tension in the Middle East, but also by more
moderate comments from Polish rate setters.
But some dealers said the zloty may be able to turn around
in coming sessions.
"Overall, if you look at Polish (zloty) weakness, maybe
there has been enough of a shakeout, and now we wait until the
market gets more positive, and the zloty can get a bit of a run
going," a London-based dealer said.
"The zloty is the most populated (CEE) trade so if you are
going to take risk off, it is often in Poland."
By 1701 GMT, the zloty <EURPLN=> was bid steady on the day
at 3.975 to the euro, underperforming the rest of the region.
The Hungarian forint <EURHUF=>, after a drop on Tuesday when
the government announced reform plans that were lacking some of
the detail the market had been counting on, gained 0.5 percent.
The Czech crown <EURCZK=> was up 0.3 percent and the
Romanian leu <EURRON=> was steady.
Data showed earlier in the day that Polish economic growth
picked up to 4.4 percent in the fourth quarter as forecast,
helped by strong domestic demand. []
But that data, along with news that the country's public
debt stood at 53.5 percent of GDP at the end of 2010 -- below
levels that would trigger automatic spending cuts -- did little
to boost the zloty.
STAGGERING POLICY
Emerging European currencies found support from the euro,
which reached its highest since November on expectations that
euro zone interest rates would rise faster than U.S. rates. The
region's currencies often track the euro/dollar cross.
[]
The Poles are not the first to raise rates in central
Europe, with Hungary carrying out three quarter-point increases
since November before pausing last month.
While the Czech central bank has yet to adjust its record
low interest rates, forward rate agreements (FRA) are pricing in
a hike by the middle of the year. <CZKFRA> <>
Central bank chief Miroslav Singer has said inflationary
pressures in the Czech economy are still weak. []
Investors in Hungary continued to digest the government's
fiscal plans announced the previous day, which were seen as
lacking the kind of detail the market had counted on.
[]
Hungarian assets have rallied this year on bets that a plan
to save billions and set finances on a sustainable path would
keep the country's debt rating from being cut to junk status.
"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 firmed but stocks <> fell 0.5 percent,
dragged lower by blue chip OTP Bank's <OTPB.BU> 0.8 percent fall
on government plans for an extension of a windfall bank tax
after 2011.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.25 24.321 +0.29% +3.09%
Polish zloty <EURPLN=> 3.975 3.974 -0.03% -0.43%
Hungarian forint <EURHUF=> 271.11 272.4 +0.48% +2.53%
Croatian kuna <EURHRK=> 7.409 7.419 +0.13% -0.39%
Romanian leu <EURRON=> 4.201 4.203 +0.05% +0.76%
Serbian dinar <EURRSD=> 103.81 103.4 -0.39% +2.04%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +7 basis points to 23bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +80bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +84bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -10 basis points to +489bps over bmk*
5-yr T-bond HU5YT=RR -4 basis points to +468bps over bmk*
10-yr T-bond HU10YT=RR -6 basis points to +403bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1804 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Krisztina Than/Marton Dunai/Jason Hovet; Editing
by Catherine Evans)
