* Hungary cbank cuts rates by 50 bps as expected
* Forint firms to 11-week high after cbank comments
* Dollar weakness helps CEE fx, leu bucks trend on politics
(Adds Hungary forint surge, new comments.)
By Krisztina Than and Dagmara Leszkowicz
BUDAPEST/WARSAW, Oct 19 (Reuters) - The forint firmed to an
11-week high against the euro on Monday as an interest rate cut
by the Hungarian central bank (NBH) was followed by comments
suggesting the room for further easing may be limited.
Meanwhile, dollar weakness gave support to currencies in the
European Union's emerging markets, while domestic political
uncertainty slightly weakened Romania's leu.
Hungary's central bank cut its base rate to a more than
3-year low at 7.0 percent and analysts said there was room to
cut the rate further in the coming months. []
The forint <EURHUF=> still firmed by 0.7 percent against the
euro to its strongest levels since early August at 264.55,
before giving up some ground to 265.05 by 1504 GMT.
Some market watchers said comments from NBH Governor Andras
Simor following the rate cut -- which had been expected --
suggested that the pace of easing may slow in the next months.
"The bank knows that they might trigger a major forint
sell-off if they cut too aggressively," said Lars Christensen,
analyst at Danske Bank in Copenhagen. "They will cut another 25
basis points (next month) if things are calm -- otherwise they
will keep rates on hold."
Dealers said a weakening of the dollar towards 1.5 versus
the euro and a rise by global equity markets indicated that
appetite for risk remains supportive to Central European assets.
"Also Simor said that there are limits to the rate cuts,"
one Budapest-based dealer said.
Polands's zloty <EURPLN=> firmed one percent against the
euro to 4.171.
Poland has avoided recession which has hit Europe and is
poised to recover more quickly than its neighbours. Polish data
showed industrial output fell 1.3 percent on a yearly basis, but
it jumped 15 percent in month-on-month terms in September.
Analysts said Poland may return to industrial output growth
"The NBP (central bank) is likely to remain on hold, but the
hawks on the MPC could use the recovery in the manufacturing
sector as an argument in favour of a "neutral bias" rather than
the present "easing bias" in monetary policy," said Christensen.
POLITICAL WRANGLING
Elsewhere in the region, other currencies were mixed, with
the Czech crown <EURCZK=> gaining some 0.5 percent versus the
euro. The Romanian leu <EURRON=> shed 0.1 percent.
Prime Minister designate Lucian Croitoru is expected to meet
political parties later in the day in a bid to garner support to
form a new government. Observers say he is facing an uphill
battle after opposition parties reiterated over the weekend
their support for another candidate.
Dealers said while political wrangling is hurting market
sentiment, players fear a central bank intervention close to 4.3
per euro, a level they say it has defended in the past weeks.
The central bank has declined to comment.
"Volumes in the market are lower with every day that
passes," one dealer said. "We are basically stuck at these
levels and I see no special interest in going either way."
"I don't think that it will be a surprise for the market if
Croitoru fails to form a government, but it will be a positive
if he miraculously succeeds," the dealer added.
The region's currencies have gained steadily since March on
a global risk rally that has driven huge gains for stock markets
and emerging markets as faith grew that the economy would
recover from last year's financial crisis.
But analysts say there are risks to eastern Europe's own
recovery from the need to rein in budgets and political
uncertainty, most recently in Romania.[]
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 25.698 25.837 +0.54% +4.11%
Polish zloty <EURPLN=> 4.171 4.211 +0.96% -1.34%
Hungarian forint <EURHUF=> 265.05 266.96 +0.72% -0.57%
Croatian kuna <EURHRK=> 7.222 7.24 +0.25% +1.98%
Romanian leu <EURRON=> 4.291 4.286 -0.12% -6.45%
Serbian dinar <EURRSD=> 93.073 93.05 -0.02% -3.86%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -8 basis points to +94bps over bmk*
7-yr T-bond CZ7YT=RR +14 basis points to +146bps over bmk*
10-yr T-bond CZ10YT=RR -14 basis points to +103bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR 0 basis points to +501bps over bmk*
5-yr T-bond HU5YT=RR +1 basis points to +446bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +397bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1704 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Krisztina Than/Dagmara Leszkowicz/Sandor Peto;
Editing by Victoria Main and Andy Bruce)
