* Leu pressured by politics, but investors fear c.bank
* Crown outperforms, stable as deficit worries abate
* Hungary cbank seen cutting rates by 50 bps on Monday
By Marton Dunai and Marius Zaharia
BUDAPEST/BUCHAREST, Oct 16 (Reuters) - The Romanian leu was
stable on Friday, stuck between political woes and fears of
central bank intervention, while the Czech crown outperformed
Polish and Hungarian peers due to easing budget worries.
Romania's troubles, caused by the government collapse
earlier this week, intensified on Friday after designated Prime
Minister Lucian Croitoru looked likely to fail to get
parliamentary approval. []
However, the leu <EURRON=> remained steady, slightly off
7-month lows hit earlier this week. Investors feel it should be
sold but they are wary of central bank interventions in the
market to defend the 4.3 level.
"The expectation is that Croitoru will not get parliament's
approval, but buying EUR/RON at this point has no upside because
at 4.3 you would probably see the central bank on offer," one
Bucharest-based dealer said.
The broader concern is an extended stalemate will prevent
the country taking hard budget decisions needed to stabilise its
still rocky finances and keep aid under its IMF deal flowing.
In the Czech Republic, Prime Minister Jan Fischer said on
Friday he expected this year's public sector deficit to reach
6.5 percent of gross domestic product, a smaller gap than that
estimated by his finance minister. []
"Maybe the market could be satisfied with today's comment
from Czech PM Fischer, who has said that the budget deficit
should... (be) in line with overall expectations," KBC Bank said
in a note.
The crown <EURCZK=> outperformed the region after a weak
performance in recent sessions, trading steady at 1415 GMT. The
Polish zloty <EURPLN=> slid the most at 0.5 percent, with the
Hungarian forint <EURHUF=> following, down 0.2 percent.
Analysts expect the crown to stay weaker because of recent
central bank comments it may use several tools, including
intervention to fight a firming trend.
Those comments reignited debate over rate cuts, but a
Reuters poll earlier this week showed Czech Republic was already
at the end of its easing cycle. []
HUNGARY CBANK SEEN EASING
Hungary's central bank is expected to cut its key interest
rate to 7 percent from the current 7.5 percent, a Reuters survey
showed on Friday. []
The poll also predicted rates would bottom out lower than
previously thought and inflation would undershoot previous
estimates as the crisis eats into domestic demand.
Hungary's bond yields remained near 2009 lows as the market
priced in further rate cuts.
"The 50 basis point cut on Monday is a done deal," a dealer
said. "We have priced more cuts to 6 percent, at least. The
question now is, will (the central bank) go below 6 percent?
Hungary's debt agency AKK said on Friday the country plans a
small positive net forint-denominated bond issuance next year
and aims to shift focus towards domestic issuance as it
gradually comes off external aid. []
Other bond markets in the region were quiet.
Warsaw took a blow to its privatisation plans -- key to
easing debt supply and stresses on the bond market next year --
when Germany's RWE <RWEG.DE> backed out of purchasing
state-owned utility ENEA <ENAE.WA>.
But Finance Minister Jacek Rostowski said on Thursday the
government would systematically reduce the shortfall from 2011
after it balloons to around 7 percent of GDP next year.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.827 25.803 -0.09% +3.59%
Polish zloty <EURPLN=> 4.212 4.19 -0.52% -2.3%
Hungarian forint <EURHUF=> 267.44 266.88 -0.21% -1.45%
Croatian kuna <EURHRK=> 7.24 7.257 +0.23% +1.73%
Romanian leu <EURRON=> 4.284 4.286 +0.05% -6.29%
Serbian dinar <EURRSD=> 92.99 93.043 +0.06% -3.77%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +15 basis points to 120bps over bmk*
7-yr T-bond CZ7YT=RR +9 basis points to +135bps over bmk*
10-yr T-bond CZ10YT=RR +11 basis points to +115bps over
bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +370bps over bmk*
5-yr T-bond PL5YT=RR +1 basis points to +324bps over bmk*
10-yr T-bond PL10YT=RR +1 basis points to +288bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +2 basis points to +611bps over bmk*
5-yr T-bond HU5YT=RR +1 basis points to +566bps over bmk*
10-yr T-bond HU10YT=RR +1 basis points to +496bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1715 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Marton Dunai and Marius Zaharia; editing by
Chris Pizzey)
