(Updates throughout)
By Jason Hovet
PRAGUE/BUDAPEST, Nov 6 (Reuters) - The Czech crown slid on
Thursday after the country's central bank cut rates by its
biggest amount in six years, dragging Poland's zloty with it as
European banks also slashed borrowing costs.
At 1508 GMT, the Czech crown <EURCZK=> was off 2.05 percent
from Wednesday's levels at 24.905, after the Czech central bank
cut rates by 75 basis points to 2.75 percent, the lowest in the
European Union.
The Czech move, along with deep cuts by central banks in the
euro zone, Britain and Switzerland in the face of worsening
growth outlooks, put pressure on Poland's central bank to also
loosen policy, sending the zloty currency lower.
The zloty <EURPLN=> traded at 3.599 to the euro, falling
2.42 percent from Wednesday's close and extending losses in the
afternoon. Poland's central bank governor said after the Czech
move he was "even more convinced an easing cycle in Poland
should be started" [].
"The zloty weakening is mainly tied to deeper than expected
cuts by the central banks in Europe," said Bartosz Pawlowski, a
currency strategist at TD Securities in London.
"Especially the Czech central bank's decision might have led
the investors to a belief that Central and Eastern Europe is
heading for more aggressive rate cuts," he added.
Meanwhile, Serbia's central bank intervened again to prop
up the dinar, the region's biggest loser in the last month on
external financing concerns.
The dinar fell 2.57 percent on the day, underlining concerns
that tightening credit markets and a sharp slowdown will
eventually send more in the region to the IMF for aid.
[]
"Liquidity is thin and spreads are widening making the dinar
declines even more drastic," one treasury analyst said.
The Czechs first eased policy with a quarter percentage
point cut in August. The EU has said the Czech Republic should
weather the financial crisis well and the central bank had been
expected to cut rates by just 25 basis points on Thursday.
"It's a bold move, but ultimately not bad in the current
environment where they are worried about (economic) growth," a
London currency dealer said.
"The Czechs have also said they don't want excessive Czech
crown strength," the dealer added.
Czech interbank lending rates fell 100 basis points and bond
yields slipped by 10-40 basis points.
Hungary's government bonds moved sideways after a sharp fall
in yields on Wednesday. Polish yields dropped and dealers said
further falls were possible, but the market remained uncertain.
Currencies swung on Thursday, gaining some when the Bank of
England cut its main rate by a hefty 150 basis points shortly
after the Czech decision, but then retreating when the European
Central Bank lowered its lending rate by an in-line 50 bps.
Central banks in Hungary and Serbia have raised interest
rates in the past month to defend currencies, while Romania is
seen holding fire on rates for the time being. Romania's leu
<EURRON=> dropped 0.49 percent to 3.701, while the forint
<EURHUF=> shed 1.31 percent to 260.83 per euro on Thursday.
The forint recouped part of its earlier loss after the
government announced the details of an International Monetary
Fund rescue package to Hungary and the central bank said it
would remain "vigilant" in rate policy.[]
Hungary's central bank and government said on Thursday it
would provide 600 billion forints ($2.95 billion) in funding to
the country's banks as part of the package [].
Serbia said this week it was in talks for a possible deal
with the International Monetary Fund [], which
follows a $25 billion IMF/EU aid package for Hungary last month
that helped calm investor nerves and stabilise the forint.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.905 24.404 -2.05% +6.01%
Polish zloty <EURPLN=> 3.599 3.514 -2.42% +0.04%
Hungarian forint <EURHUF=> 260.830 257.450 -1.31% -3.16%
Croatian kuna <EURHRK=> 7.140 7.136 -0.06% +2.55%
Romanian leu <EURRON=> 3.701 3.683 -0.49% -3.37%
Serbian dinar <EURRSD=> 87.829 85.627 -2.57% -11.51%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR -4 basis points to 166bps over bmk*
5-yr T-bond CZ5YT=RR -31 basis points to +127bps over bmk*
10-yr T-bond CZ9YT=RR -27 basis points to +89bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -19 basis points to +385bps over bmk*
5-yr T-bond PL5YT=RR -24 basis points to +323bps over bmk*
10-yr T-bond PL10YT=RR -14 basis points to +253bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -15 basis points to +926bps over bmk*
5-yr T-bond HU5YT=RR -10 basis points to +849bps over bmk*
10-yr T-bond HU10YT=RR +3 basis points to +537bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1608 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/Jason Hovet/Sandor Peto; Editing by Ruth Pitchford)
