(Updates throughout)
By Dagmara Leszkowicz and Marius Zaharia
WARSAW/BUCHAREST, Feb 13 (Reuters) - Emerging European
currencies gave up early gains on Friday, tracking euro losses
after poor euro zone GDP data and mounting evidence the region's
economies are in or near recession.
Romania's leu got a small boost from a Moody's analyst
saying the ratings agency would keep its stable outlook for now,
but the currency <EURRON=> still traded a tad down on the day at
4.29 per euro by 1525 GMT.
Moody's is the only major rating agency to grade Romania
investment grade, after Standard & Poor's and Fitch cut it to
"junk" last year, largely because of concerns over inadequate
fiscal policy response to external imbalances.
"The aristocrats of rating agencies maintaining Romania
investment grade and stable ... in these days, it's positive
news," said a dealer with a foreign bank in Bucharest.
Polish data showed on Friday inflation was at 3.1 percent
last month, down slightly from December but above market
expectations -- highlighting a dilemma facing other central
banks in the region where weak currencies limit the scope for
rate cuts to boost sinking economies.
One of the central bank's Monetary Policy Council (MPC)
members commenting on the data said the weakening zloty -- down
more than 11 percent this year -- kept consumer prices
relatively high and suggested due to that fact the council could
pause in cutting interest rates.
"The scope for cutting rates has been intensively used. A
pause could be useful now. But I don't know for how long,"
Dariusz Filar, known as a hawk, told TVN CNBC. []
Such a view could also be seen in Hungary.
"Views about monetary policy prospects are split," a
Budapest-based dealer said. "One camp believes that the central
bank cannot really cut rates further as it needs to defend the
forint. The other camp thinks that there has been a shift in
monetary policy."
The forint <EURHUF=> inched up to 298.5 per euro and the
zloty <EURPLN=> lost 0.5 percent to 4.648. The Czech crown
<EURCZK=> was steady at 28.645 to the euro.
FALLING DEMAND
Central Europe's export-strong economies have been punished
by slumping demand from a recession-hit euro zone, hurting
currencies already damaged by risk aversion to emerging assets.
In Hungary, the economy shrank 2.0 percent on the year. This
was deeper than expected in the worst figures since 1996
[], while inflation slowed to 3.1 percent in
January, compared with a 3.3 percent forecast. []
Czech data showed GDP grew 1.0 percent on the year in the
fourth quarter, compared with forecasts of 0.2 percent
[], but a seasonally adjusted 0.6 percent
quarter-on-quarter fall showed the Czech economy heading for
recession.
In Poland, the finance minister was quoted as saying
economic growth could undershoot even the government's most
pessimistic scenario of 1.7 percent this year. []
Germany, one of the region's main trading partners, posted
its worst quarterly GDP contraction since 1990, shrinking 2.1
percent quarter-on-quarter at the end of 2008 [].
Many analysts expect Romania may also fall into recession.
Moody's said in an interview the country's government has
taken positive steps toward repairing its loose fiscal policy
but funding aid from the European Union or the International
Monetary Fund (IMF) may be necessary to keep its
rating.[]
On the bond markets, Hungarian yields rose on Friday but
traders said investors are likely to keep their wait-and-see
approach next week, ahead of the central bank's Feb. 23 meeting.
"In my view today's central bank minutes suggested further
rate cuts, but government bonds are pricing the country risk
rather than interest rate expectations," one trader said.
[]
Polish bonds rebounded slightly but dealers said it was a
small correction from the recent falls and the market was still
uncertain over a further direction, but dealers saying bonds
would trace the currency.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2009
Czech crown <EURCZK=> 28.645 28.658 +0.05% -6.6%
Polish zloty <EURPLN=> 4.648 4.627 -0.45% -11.47%
Hungarian forint <EURHUF=> 298.54 298.95 +0.14% -11.72%
Croatian kuna <EURHRK=> 7.435 7.43 -0.07% -0.94%
Romanian leu <EURRON=> 4.287 4.286 -0.02% -6.36%
Serbian dinar <EURRSD=> 93.569 93.24 -0.35% -4.37%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -8 basis points to 169bps over bmk*
4-yr T-bond CZ4YT=RR +30 basis points to +174bps over bmk*
8-yr T-bond CZ8YT=RR -5 basis points to +245bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -6 basis points to +372bps over bmk*
5-yr T-bond PL5YT=RR -7 basis points to +331bps over bmk*
10-yr T-bond PL10YT=RR -6 basis points to +288bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -28 basis points to +959bps over bmk*
5-yr T-bond HU5YT=RR -65 basis points to +852bps over bmk*
10-yr T-bond HU10YT=RR -52 basis points to +683bps 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; Editing by Victoria Main)
