* Hungary's CPI lower than expected, rate cuts seen
* 2010 budget deficit weighs on zloty, bonds consolidate
(Adds fixed income, detail)
By Dagmara Leszkowicz
WARSAW, Sept 11 (Reuters) - Hungary's forint weakened on
Friday while bonds were up after inflation data added fuel to
speculation the country's central bank may cut interest rates
further from their present 8 percent.
Other currencies were mixed with the Czech crown staying
relatively stable and Polish zloty falling again as worries over
the 2010 budget deficit still weighed on the unit.
Hungary's stats office said consumer price growth slowed to
5 percent in August from 5.1 percent in July and against 5.5
percent of analysts' forecast. []
"Interest rates can go lower now than earlier expected. The
question is whether interest rates can go below 6 percent next
year, now I think that they can," said Gyorgy Barcza at K&H Bank
in Budapest.
"Recession seems to solve our old inflation problem which
means higher interest rates than elsewhere in the region, like
Poland, will be no longer justified."
At 0822 GMT the forint <EURHUF=> was 0.4 percent weaker to
the euro traded at 272.68, while the Polish zloty <EURPLN=> and
the Romanian leu were down 0.6 percent and 0.3 percent
respectively.
The Polish zloty fell again on Friday, and analysts said the
currency is still affected by worries over next year's budget
deficit. It has lost almost 2 percent to the euro since the
budget approval at the start of the week.
"We had good data from China which would theoretically boost
the currency but it seems Poland's deficit is weighing on the
region and I think the zloty may continue its weakening today,"
said Lukasz Wojtkowiak, FX strategist at Millennium bank in
Warsaw.
Poland's government approved a 2010 budget bill on Tuesday
with the highest deficit in 20 years, news that triggered poor
results at a bond auction on Wednesday and depressed regional
sentiment on Thursday as well.
The Czech government also approved next year's budget law on
Wednesday with the widest-ever deficit, but the analyst said the
crown would not be as affected by the budget news as the zloty.
Also the Czech's stats office said industrial output in July
contracted by 18.2 percent, while analysts had expected a 14.5
fall. []
BONDS MIXED
Hungary's bonds, especially the short-end of the curve,
strengthened following lower than expected inflation figure that
cemented expectations for quick interest rate cuts.
By contrast Polish paper was stable on Friday, after four
days of falls and dealers said the market may consolidate in the
coming days, trying to digest mixed informations.
"It looks like the market calmed down a bit and now we're in
a consolidation," said Krzyszof Izdebski, fixed-income dealer at
PKO BP in Warsaw.
"The budget news as well as a Standard & Poor's report on
the banking system affected bonds, but on the other hand the
finance ministry's comment that public debt may not exceed the
level of 50 percent this year was supportive for the market."
Standard & Poor's warned on Thursday that Poland's banking
system was vulnerable to the credit risks of retail and
corporate clients because of the slowing economy. []
Later in the day a finance ministry official said Poland's
public debt may not top 50 percent of Gross Domestic Product
(GDP) in 2009, as feared earlier.
In 2008, Poland's public debt stood at 47.1 percent of GDP,
below the European Union's 60 percent ceiling.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.497 25.473 -0.09% +4.93%
Polish zloty <EURPLN=> 4.175 4.15 -0.6% -1.44%
Hungarian forint <EURHUF=> 272.68 271.6 -0.4% -3.35%
Croatian kuna <EURHRK=> 7.33 7.33 0% +0.48%
Romanian leu <EURRON=> 4.255 4.244 -0.26% -5.65%
Serbian dinar <EURRSD=> 93.12 93.42 +0.32% -3.91%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -3 basis points to 201bps over bmk*
7-yr T-bond CZ7YT=RR +14 basis points to +200bps over bmk*
10-yr T-bond CZ10YT=RR +2 basis points to +181bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +395bps over bmk*
5-yr T-bond PL5YT=RR -1 basis points to +352bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +294bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -4 basis points to +642bps over bmk*
5-yr T-bond HU5YT=RR -1 basis points to +573bps over bmk*
10-yr T-bond HU10YT=RR +2 basis points to +489bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 0922 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 Chris Pizzey)
