* Euro having less impact on CEE FX in pre-holiday trade
* Hungary bond auction better, Romania yields up
* Markets await rate decisions next week
(Updates throughout)
By Dagmara Leszkowicz and Jason Hovet
WARSAW/PRAGUE, Dec 16 (Reuters) - The Hungarian forint rose
to a three-week high on Thursday boosted by growing expectations
of an interest rate rise next week, although trade was limited
as investors avoided opening new positions before the year end.
The euro -- the region's main reference currency -- usually
sets trends for the CEE currencies, but the correlation seems to
have weakened in recent days, dealers said.
Caution ahead of the holiday season meant even the Hungarian
forint had room for gains despite continued concern about
government policies to tackle debt.
"Looking at Hungary, we should see a sell-off of its
currency, given the political situation there, but this is not
happening," the dealer said.
Analysts and markets have viewed government plans to use
pension funds and taxes on banks and other businesses to cut the
budget in the next few years as a short-term fiscal boost that
raises longer-term risks. []
Investors focused on the short-term boost argument on
Thursday when yields in a Hungarian bond auction fell, allowing
it to sell more debt than planned across different maturities.
[]
Hungary's independent Budget Council said the country's
cash-flow budget deficit could rise to 4.1 percent of gross
domestic product by 2012 and to 5.5 percent by 2013 after the
impact of one-off taxes and pension measures fades.
Analysts worry that Hungary could erode its pension assets
without structural reforms and face difficult financing problems
in the medium term. []
The forint <EURHUF=> lost some 3 percent of its value
against the euro after the plan was announced, but it has clawed
back half of its losses since then and bid half a percent up at
273.89 to the euro by 1525 GMT on Thursday.
Other currencies hovered around previous closing levels,
with the Polish zloty <EURCZK=> losing 0.3 percent and the Czech
crown <EURCZK=> and Romanian leu <EURRON=> edging down.
RATE MOVES
Rate decisions are due next week across the region. Hungary
will decide on Monday and analysts are evenly split on whether
its central bank will raise rates for a second month in a row.
The main rate stands at 5.5 percent. []
"Expectations of a rate step next Monday have recently
provided support (for the forint)," Commerzbank said in a note.
"Urgently required structural reforms, on the part of the
government, are however decisive for the medium term outlook."
The central bank, citing a rise in inflation forecasts and
in Hungary's risk profile, surprised markets last month with the
first policy tightening in central Europe since the start of the
2008 global financial crisis.
Hungary's forward rate agreements price in a 50 basis point
rate increase in the next three months. Bonds yields were steady
on Thursday.
In Poland, where the central bank has kept rates steady at a
record low of 3.5 percent for the past 17 months, the bank
decides on rates on Wednesday but is not expected to start
raising borrowing costs until early next year.
A member of the Monetary Policy Council, Andrzej Bratkowski,
told TVN CNBC late on Wednesday there was the possibility of an
early start in the monetary tightening cycle, although he said a
decision should not be prejudged. []
The Czech central bank also meets on Wednesday and is widely
expected to keep its main rate at a region-low 0.75 percent well
into next year. []
The Czech coalition government will face a no-confidence
vote on Tuesday after the main opposition party filed a motion
on Thursday, but is seen easily surviving thanks to its large
majority in the lower house. []
Romania's parliament will also hold a no-confidence vote
against IMF-backed wage reform -- the third such vote this year
against Prime Minister Emil Boc's government. The government is
expected to survive. []
Romania sold 500 million lei ($154 million) of three-year
debt as planned on Thursday, with yields inching higher from
last month's sale and expected increase further next year in
tandem with funding needs. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.145 25.13 -0.06% +4.66%
Polish zloty <EURPLN=> 3.995 3.981 -0.35% +2.73%
Hungarian forint <EURHUF=> 273.89 275.23 +0.49% -1.29%
Croatian kuna <EURHRK=> 7.388 7.39 +0.03% -1.07%
Romanian leu <EURRON=> 4.293 4.29 -0.07% -1.3%
Serbian dinar <EURRSD=> 104.2 105.36 +1.11% -7.98%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -8 basis points to 72bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +69bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +79bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +625bps over bmk*
5-yr T-bond HU5YT=RR -2 basis points to +557bps over bmk*
10-yr T-bond HU10YT=RR -4 basis points to +471bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1627 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
and Jason Hovet; Editing by Ron Askew)
