* Hungary under pressure on monetary, fiscal policy outlook
* Leu extends losses after panel rejects VAT hike
* Polish rates flat as expected, bonds look to Wed tender
* Serbian cbank intervenes again, reverses dinar slide
(Updates prices, throughout)
By Krisztina Than and Jason Hovet
BUDAPEST/PRAGUE, Aug 24 (Reuters) - The forint bounced back
from three-week lows on Tuesday, but stayed down on the day as
the yield at a Hungarian bill auction rose after the central
bank warned about faster inflation and slower recovery.
The Hungarian unit won back losses late in the afternoon
with other emerging European currencies, led by the Polish
zloty's rise to trade even on the day after poor U.S. housing
gave a slight lift to the region's reference currency, the euro.
But with risk aversion already heightened since last week
and appetite dented for emerging European assets, investors have
ditched Hungarian assets due to weaker growth prospects and a
general lack of clarity to the government's 2011 budget.
The forint <EURHUF=> dropped 0.7 percent by 1520 GMT and was
bid at 284.2 to the euro, off lows around 286. The Budapest
stock index <> dropped 1.5 percent to a one-month low.
The decline in Hungarian assets started Monday after the
central bank depicted a darker economic outlook than expected.
After leaving rates unchanged, the bank warned it may need
to hike rates if the inflation outlook or risk assessment
worsen, but left no clear path for the market. []
It also said a government commitment to keep the budget
deficit within sustainable limits was key for investors' trust
after a halt in talks with international lenders the
International Monetary Fund and European Union last month.
"The immediate reason (for weakness) is yesterday's central
bank comments," a Budapest-based currency dealer said. Some
dealers said the market could test the 287 per euro level.
Hungarian government bonds retreated further from 3-month
highs, with yields up 11-15 basis points, even though a 300
billion forint bond expiry on Tuesday continued to lend some
support to the market. Two-year interest rate swaps rose 20 bps
as markets started betting more on a rate hike as the next move.
The average yield at a 3-month treasury bill sale rose to
5.38 percent from 5.28 percent a week ago. []
TIGHTER TIMES
Budapest has committed to a budget deficit target of 3.8
percent of GDP for 2010, as agreed under its 20 billion euro
financing deal with the IMF and EU, but it is unclear what
deficit the government will aim for in 2011.
European governments face the challenge of cutting back
state budgets to meet EU criteria and to please investors, while
at the same time not damaging a fragile economic recovery that
is already set to slow down in the last part of the year.
A Romanian parliamentary committee voted against a hike in
value-added tax that is crucial for meeting a 20 billion euro
IMF rescue for the recession-hit country. []
The committee has no direct impact on policy but the vote
raises questions about the government's ability to defend the
hike in a parliament vote this week and in early September.
The leu eased 0.2 percent to 4.237 versus the euro. The
Czech crown <EURCZK=> shed 0.3 percent. Stocks also dropped,
with Warsaw <> and Prague <> at month lows.
Serbia's central bank sold euros in the market again to stem
a slide of the dinar to record lows <EURRSD=>. []
The Polish zloty <EUPLN=> down less than 0.1 percent after
the central bank left the main interest rate at a record low 3.5
percent and said inflation looked set to accelerate --
reinforcing 2010 rate hike expectations. []
Polish bonds gained on the long-end, mainly in anticipation
of a switch tender for 5- and 10-year papers on Wednesday where
dealers expect strong demand from domestic funds.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.855 24.779 -0.31% +5.89%
Polish zloty <EURPLN=> 4.013 4.01 -0.07% +2.27%
Hungarian forint <EURHUF=> 284.2 282.2 -0.7% -4.87%
Croatian kuna <EURHRK=> 7.28 7.275 -0.07% +0.4%
Romanian leu <EURRON=> 4.237 4.228 -0.21% +0.01%
Serbian dinar <EURRSD=> 105.15 104.92 -0.22% -8.82%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -5 basis points to 118bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +116bps over bmk*
10-yr T-bond CZ9YT=RR +2 basis points to +119bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +396bps over bmk*
5-yr T-bond PL5YT=RR -9 basis points to +380bps over bmk*
10-yr T-bond PL10YT=RR -7 basis points to +317bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +15 basis points to +596bps over bmk*
5-yr T-bond HU5YT=RR +22 basis points to +557bps over bmk*
10-yr T-bond HU10YT=RR +22 basis points to +480bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1723 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus; Writing by Krisztina Than/Sandor
Peto/Jason Hovet; Editing by Ron Askew)
