* Hungary holds rates, CEE rates seen unchanged for now
* Hungarian bond yields trade at 5-week lows
* Romania sticks to yield cap at 1-year bill auction
(Updates throughout)
By Sandor Peto and Jason Hovet
BUDAPEST/PRAGUE, Sept 27 (Reuters) - Rising stock markets
helped the forint climb to a three-month high on Monday, while
Hungarian bonds held their gains after the central bank kept
interest rates on hold and said hiking them would be the last
resort.
The Hungarian central bank's decision to leave its base rate
at 5.25 percent was expected and followed the Czechs leaving
their main rate unchanged last week. Analysts expect Poland and
Romania to follow suit on Wednesday. []
[]
Central European interest rates have been cut to record
lows, but that has worried some policymakers who want tightening
to counter an expected rise in inflation or to prevent asset
bubbles, while not disrupting a fragile recovery.
Still, only a minority of analysts expect rate rises from
the Hungarians or Czechs by the end of 2010.
Hungary's central bank warned on Monday it might raise
interest rates if investors' attitude to the country worsened,
but said details of the 2011 budget -- expected after municipal
elections -- could help quell such risks. []
The centre-right government, whose decision to break off IMF
talks caused market weakening over the summer, triggered a rally
in Hungarian bonds this month by pledging that it would cut the
budget deficit in 2011.
Hungarian government bond yields dropped to five-week lows
in the morning session before the rate decision, and stayed
there in the afternoon, down 5-8 basis points.
The Hungarian forint <EURHUF=> touched its highest level
since June before retreating slightly, but was bid 0.1 percent
up from Friday by 1409 GMT. The forint is on target for a 2.5
percent rise in September -- better than the Czech crown's 0.5
percent rise -- and is 5 percent higher than a July low.
"(Hungary) must prove that they're committed to keep the
2011 budget deficit below 3 percent of GDP," said Nordea
strategist Elisabeth Andreew. "They will hike rates (later this
year) only in the case that EUR/HUF weakens again up to the 290
area."
ROMANIA SELLS LESS BILLS
Central European currencies held on to last week's gains,
helped by strong investor appetite for risk as seen in gains for
Budapest and Bucharest equities along with U.S. dollar weakness.
The Czech crown <EURCZK=> firmed 0.2 percent to 24.559 to
the euro, the zloty <EURPLN=> was up at 3.951, while the
Romanian leu <EURRON=> weakened 0.1 percent. All moved in narrow
ranges for the day.
The economies of Hungary and Romania -- both recipients of
international aid since 2008 -- are regarded as more vulnerable
to shifts in global financial market sentiment than other
economies in the region like the Czech Republic and Poland.
Romania sold 40 percent of the amount it offered at a debt
auction on Monday, sticking to a yield-capping strategy that has
limited issuance to less than half the planned amount for
September.
Investors began demanding yields above 7 percent from
Romania in early May, due to political uncertainty and a rise in
inflation following a July tax hike. Analysts say pressure could
build by November, when financing needs peak. []
"I have a feeling that many local banks have reached the
limits of their exposure to the Romanian state, so they will
have to pay more to lure foreigners," a Bucharest dealer said.
"But I don't think they will scrap the cap so quickly (in
October), because they are stubborn."
The International Monetary Fund said on Friday its board
approved $1.19 billion in assistance for Romania.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.559 24.617 +0.24% +7.16%
Polish zloty <EURPLN=> 3.951 3.954 +0.08% +3.87%
Hungarian forint <EURHUF=> 277.05 277.19 +0.05% -2.42%
Croatian kuna <EURHRK=> 7.289 7.291 +0.03% +0.28%
Romanian leu <EURRON=> 4.247 4.241 -0.14% -0.23%
Serbian dinar <EURRSD=> 105.7 105.48 -0.21% -9.29%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +2 basis points to 103bps over bmk*
7-yr T-bond CZ7YT=RR +7 basis points to +102bps over bmk*
10-yr T-bond CZ9YT=RR +11 basis points to +116bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -1 basis points to +566bps over bmk*
5-yr T-bond HU5YT=RR -1 basis points to +516bps over bmk*
10-yr T-bond HU10YT=RR 0 basis points to +452bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1609 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Krisztina Than/Sandor Peto/Jason Hovet; Editing
by Hugh Lawson)
