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By Jason Hovet
PRAGUE, Oct 8 (Reuters) - Ailing eastern European currencies
cut losses on Wednesday after interest rate cuts by the world's
big central banks, but most stayed under water as market players
mulled whether the moves would help staunch the credit crisis.
The Polish zloty <EURPLN=> rebounded from its lowest level
since April but then slid back 1.11 percent to 3.452 per euro.
Hungary's forint was close behind, down 1.02 percent at 251.47.
"There was a big move in the forint following the rate cuts,
it jumped 3 forints in an instant but it has trickled back to
earlier levels," a Budapest-based currency dealer said.
"It looks like this was only a momentary jump, pessimism
endures," the trader said.
Hungarian government bond yields dropped by 10-15 basis
points on all maturities after the cuts.
The region's currencies have swung widely this week as
questions rise over western banks' stability and concerns grow
that the global economy is in for a deep slowdown, hitting
export-dependent central European states.
The Romanian leu <EURRON=> jumped almost a percent to 3.875
per euro after several days of steep losses. It is still down
about 1.5 percent on the month.
The Czech crown <EURCZK=> reversed mild losses to trade up
0.17 percent at 24.548 against the euro. September inflation
data -- although showing a higher than expected figure -- did
not change market's view on further interest rates cuts.
"The economic outlook is now more important than inflation,
so the central bank will probably cut interest rates in
November," said Pavel Sobisek, Unicredit Prague chief economist.
Lucy Bethell, a currency strategist at RBS, said the
near-term direction of the markets would depend on future moves
on equities markets, which were hammered overnight.
Asian and European stocks sold off, with eastern European
bourses all touching multi-year lows [].
The Prague bourse <> clawed back from an 8 percent drop
to trade just 1.2 percent down, and Budapest <> also cut
losses. Warsaw's blue chip index <> surfaced in positive
territory, but Romanian authorities halted trading on the bourse
<> there after heavy losses [].
RATE CUTS?
Economies in central Europe have come under strain in recent
months due to weakening demand from the euro zone, with growth
outlooks dimming further in recent weeks, helping shift
expectations towards interest rate cuts.
Bethell said the coordinated move strengthened that
argument.
"It feeds into domestic rate decisions," Bethell said. "So I
would expect the Czech national bank to be the first to respond
with a rate cut in November but I think it's much more difficult
for the Hungarian and the Poles to follow suit."
The policy shift has been most dramatic in Poland, where
just a month ago analysts had expected tighter monetary policy
to combat inflation as the government prepares for euro adoption
by 2012. Analysts said that has changed.
"Yesterday's comment by the Polish central bank's head
prompted us to believe that the Monetary Policy Council is
unlikely to raise interest rates at the October meeting,"
analysts at BPH bank in Warsaw wrote in a morning note.
On Monday Poland's central bank's governor Slawomir Skrzypek
said the ongoing global financial crisis will have an impact on
Poland's monetary policy. He gave no further details but markets
read his statement as supporting doves on the bank's council.
Polish bonds ticked up slightly, while Czech bonds slid
after prices strengthened in recent weeks.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 24.548 24.589 +0.17% +7.36%
Polish zloty <EURPLN=> 3.452 3.414 -1.11% +4.12%
Hungarian forint <EURHUF=> 251.470 248.930 -1.02% +0.55%
Croatian kuna <EURHRK=> 7.134 7.131 -0.04% +2.63%
Romanian leu <EURRON=> 3.875 3.910 +0.90% -8.23%
Serbian dinar <EURRSD=> 80.259 80.120 -0.17% -1.9%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +24 basis points to 54bps over bmk*
5-yr T-bond CZ5YT=RR +14 basis points to +35bps over bmk*
10-yr T-bond CZ9YT=RR +22 basis points to +38bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -14 basis points to +283bps over bmk*
5-yr T-bond PL5YT=RR +11 basis points to +242bps over bmk*
10-yr T-bond PL10YT=RR +16 basis points to +228bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +30 basis points to +708bps over bmk*
5-yr T-bond HU5YT=RR +28 basis points to +667bps over bmk*
10-yr T-bond HU10YT=RR +30 basis points to +521bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1359 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus; Writing by Dagmara
Leszkowicz; Editing by Michael Winfrey and Stephen Nisbet)
