* Zloty leads losses as investors take breather after rally
* Polish rate setter, analysts talk of dovish moves
* Bonds mixed, mkts eye elections in Hungary, Czech Rep
(Adds bonds, comments, updates markets)
By Marton Dunai
BUDAPEST, March 22 (Reuters) - The Polish zloty led losses
in emerging European assets on Monday as investors in the region
took a breather and on expectations that currencies' recent
strength could discourage early rate rises.
The zloty <EURPLN=> shed 0.7 percent against the euro,
trailed by Hungary's forint <EURHUF=> and the Czech crown
<EURCZK=>, which eased a third of a percent each. The Romanian
leu <EURRON=> was 0.2 percent weaker.
Stocks also eased across the region as renewed fears over
Greece's financial problems weighed on core markets.
"With a deterioration in sentiment on stock markets, the
(forint) exchange rate has also started to correct," Raiffeisen
Bank said in a note.
The zloty and the forint shot to 15-month highs last week
while the crown jumped to a five-month peak on an improving
economic outlook and lower debt levels.
The zloty has gained nearly 5 percent against the euro this
year, and the crown and the leu have each added more than 3
percent in 2010, sparking talk of more dovish policy ahead in
the region.
Jerzy Hausner, a new member of Poland's Monetary Policy
Council, said the zloty's strength was no cause for alarm but
coordinated action to weaken a currency can be effective.
[]
"Attempts to weaken a currency can be partially effective,
particularly when they are backed by the central bank and the
government," Hausner told Reuters in an interview. "Co-operation
in this area is absolutely necessary." []
"If the appreciation (process) is not too fast or too
volatile, then it's a positive phenomenon," he said. "It is
exchange-rate volatility and excessive pace of the appreciation
that is damaging."
In the Czech Republic, analysts expect the central bank to
keep rates at the current record low at its next meeting on
Thursday. Although rates are seen rising later this year or
early 2011, some see risk on the easing side.
"The risk of surprises at the meeting, if any, is that we
get slightly more dovish comments because of concerns about
further currency strength," Nordea said in a note. "We still do
not see any rate hikes this year."
"Should EUR/CZK drop below 25.0, we believe that no rate
hike would likely materialise before 2011," UniCredit's Pavel
Sobisek added in a note.
Dealers say more gains were indeed possible.
"If the region continues to gain we can break through (some
more technical levels)," a Prague dealer said, adding that the
crown would depreciate closer to the May 28-29 election.
Hungary's forint has been overvalued at recent levels, which
points to another rate cut on March 29, analysts said.
"(The) current forint levels are ... fairly strong from a
fundamental point of view, boding well for (the) rate cut
outlook," CIB Bank analysts said in a note.
BONDS WEAKER
Hungarian bond yields rose about 10 basis points across the
curve after hitting multi-year lows in recent weeks, and Polish
bonds were flat amid lacklustre interest, dealers said.
"It seems to me that the correctional move has ended for
now. We're now in for several days without bond tenders and this
will help stabilise the market, maybe even help prices to rise,"
said Pawel Bialczynski, a trader at BRE Bank in Warsaw.
Poland's finance minister told parliament on Friday that
public debt would not exceed 53 pct of GDP this year, allowing
Poland to escape automatic spending cuts mandated by law if debt
hits 55 percent of GDP. []
Markets will also be eyeing further comments by the main
Hungarian opposition party Fidesz on its economic plans ahead of
elections on April 11 and 25, which Fidesz is expected to win
with a wide margin over the ruling Socialists.
A top opposition Fidesz strategist told Reuters on Friday
that a budget deficit of between 4.5 percent and 6.5 percent of
GDP this year could be safely financed. [] Fidesz
has dismissed the current 3.8 percent deficit target as
"fiction".
If the party wins elections next month, it plans to
negotiate a precautionary standby agreement with lenders and
launch a three-year tax reform from 2011 to boost growth, the
strategist said.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.433 25.355 -0.31% +3.48%
Polish zloty <EURPLN=> 3.916 3.886 -0.77% +4.8%
Hungarian forint <EURHUF=> 264.55 263.6 -0.36% +2.19%
Croatian kuna <EURHRK=> 7.258 7.256 -0.03% +0.71%
Romanian leu <EURRON=> 4.083 4.074 -0.22% +3.78%
Serbian dinar <EURRSD=> 99.4 99.58 +0.18% -3.54%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -2 basis points to +87bps over bmk*
7-yr T-bond CZ7YT=RR +2 basis points to +119bps over bmk*
10-yr T-bond CZ10YT=RR 0 basis points to +103bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +384bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +312bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +251bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +1 basis points to +483bps over bmk*
5-yr T-bond HU5YT=RR +3 basis points to +432bps over bmk*
10-yr T-bond HU10YT=RR +3 basis points to +405bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1212 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, writing by Marton Dunai;
Editing by Susan Fenton)
