* Polish c.bank hikes key rate by 25 bps to 4.00 pct
* Zloty extends gains, helps central European currencies
* Hungary forint hits 11-month high, bond yields 5-month low
(Recasts with Polish central bank comment, bonds.)
By Jason Hovet and Sandor Peto
PRAGUE/BUDAPEST, April 5 (Reuters) - Central European
currencies including the zloty firmed on Tuesday after Poland's
central bank (NBP) raised its key interest rate <PLINTR=ECI> as
expected to stem a rise in inflationary expectations.
Hungarian bond yields hit five-month lows, driven by
optimism over the country's fiscal reforms.
Hungary's yield advantage over Poland narrowed after the NBP
rate increase. The main NBP interest rate rose to 4.0 percent
from 3.75 percent, its second hike this year, while Hungary is
not expected to raise its 6.0 percent base rate further.
The Polish move had been widely expected, and more rate
hikes may be in store.
"I can't say that we are nearing the end of the (monetary)
tightening cycle," NBP Governor Marek Belka said.
The zloty <EURPLN=> doubled its gains after the rate
decision and Belka's comments and was bid at 4.003 against the
euro at 1502 GMT, firmer by 0.45 percent from Monday.
"There was the hint that there will be further hikes," a
Stockholm-based dealer said. "People are looking for carry."
The zloty has bounced around in the past month reflecting
rate expectations, concerns over fiscal policy with Polish
elections later this year, and possible snags in its $5 billion
privatisation plan. []
The currency's gains buoyed other units in the European
Union's east wing.
The Czech crown <EURCZK=> and the leu <EURRON=> gained 0.2
percent to 24.376 and 4.114, respectively. The forint <EURHUF=>
firmed 0.3 percent to 263.80, slightly off 11-month highs hit
earlier in the day at 263.50.
"The forint may even strengthen to 260 now," one
Budapest-based dealer said. "Hungary's yield advantage (over
Poland) is still big, the trade surplus helps the forint, while
risks in monetary policy, economic growth and job creation will
materialise only later this year."
REFORM PLAN KEEPS HUNGARY SHINE
Hungarian government bonds gave up some of their early gains
in the afternoon, but yields were still about 20 basis points
lower than on Monday, with 3-year bonds trading at 6.45 percent.
Despite the rally, local fund manager K&H recommended
investors go underweight on Hungarian bonds and forint assets,
saying that it saw significant risks to the implementation of
the government's fiscal reform plans in the coming years.
[]
Local players are more pessimistic than foreign investors,
but overseas accounts keep buying Hungarian bonds -- which were
mostly rated underweight last year -- in heavy trade, one
Budapest-based trader said.
"There is strength in the selling side, too, but buyers have
won," the trader said.
"The ECB (European Central Bank interest rate) decision, the
(Hungarian) bond auctions <HUISSUE>, and March budget figures on
Thursday, and next week's government comments (on budget
measures) can cause some change in the market," the trader said.
The Czech central bank is also expected to start to tighten
interest rates later this year. The crown firmed, helped by the
zloty's rise and comments from the Czech central bank.
Central banker Pavel Rezabek said a rise in rates next month
was possible if upside inflation risks materialise, adding a
voice to the bank's hawkish contingent. []
Some dealers have started to expect the first rate hike at
the next policy meeting in May, although market rates have held
steady and not fully priced in this chance.
"I'm still expecting a rate hike in May," a Prague fixed
income dealer said.
Romania left rates flat last week and is not expected to
move any time soon.
Elsewhere in the region, rating agency Moody's put Bulgaria
on review for a possible ratings upgrade. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.376 24.42 +0.18% +2.56%
Polish zloty <EURPLN=> 4.003 4.021 +0.45% -1.12%
Hungarian forint <EURHUF=> 263.8 264.62 +0.31% +5.38%
Croatian kuna <EURHRK=> 7.368 7.369 +0.01% +0.16%
Romanian leu <EURRON=> 4.114 4.124 +0.24% +2.89%
Serbian dinar <EURRSD=> 102.16 102.39 +0.23% +3.69%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +5 basis points to -6bps over bmk*
7-yr T-bond CZ7YT=RR +6 basis points to +64bps over bmk*
10-yr T-bond CZ9YT=RR +4 basis points to +70bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +320bps over bmk*
5-yr T-bond PL5YT=RR -2 basis points to +303bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +278bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -21 basis points to +436bps over bmk*
5-yr T-bond HU5YT=RR -24 basis points to +405bps over bmk*
10-yr T-bond HU10YT=RR -18 basis points to +362bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1702 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; Writing by Jason Hovet, Krisztina
Than, Sandor Peto; Editing by Hugh Lawson, John Stonestreet)
