* Hungary cbank decision 1300 GMT, bets for hike reduced
* Forint off 6-week high, seen underperforming ahead
* Romania govt survives no-confidence vote, markets steady
* Euro pressure remains, CEE rate decisions eyed this week
(Updates with Romania vote, forint drop, Polish bond prices)
By Jason Hovet
PRAGUE, Dec 20 (Reuters) - The forint slipped from a
multi-week high as investors reduced bets that Hungary would cut
rates on Monday, while losses for the Polish zloty were capped
at the key 4.00 per euro level.
Analysts are evenly split on whether Hungary's central bank
will stand pat on interest rates or raise them for a second
straight month to counter inflation risks. []
Some analysts have said the strengthening forint has
diminished the need for another hike for now. However, others
said the bank would still be worried about inflation
expectations as well as political and fiscal uncertainties.
A weak euro added to pressure on the forint <EURHUF=>, which
lost 0.8 percent to 274.78 to the euro by 1155 GMT, off a
six-week high. Bonds were quiet, but dealers said a rate hike
may lead to a small spike in yields. []
A hike had been mostly priced in for the forint, but dealers
said some investors had second thoughts on Monday, though they
gave no reason for the change of view. Forward rate markets have
priced in 50 basis points of hikes over three months.
"I detect carry trade activity behind the EUR/HUF
performance of late. There is no fundamental reasons for the
forint to be where it is, except for interest rate speculation,"
a Budapest dealer said.
The bank surprised in November with the first policy
tightening in central Europe since the economic crisis started
two years ago. The Polish and Czech central banks, meeting on
rates on Wednesday, are not expected to follow suit until next
year.
Several analysts saw the Hungary rate move as part of a
policy battle with the centre-right Fidesz government, whose
unorthodox fiscal policy has contributed to higher inflation
pressures and risk premiums, according to the central bank.
NO CONFIDENCE TESTS
Romania's leu <EURRON=> was unmoved after the government
survived its third no-confidence vote this year. Bucharest's
stock market <> regained some losses, but still was down
0.8 percent on the day. []
A loss would have left a political vacuum just as the
country needs to pass important wage legislation and a 2011
budget to meet terms of its International Monetary Fund bailout.
"These motions send a negative signal to investors and
prolonged political instability will affect foreign
investments," said Melania Hancila, Volksbank's chief economist
in Bucharest.
The Czech centre-right government will face on Tuesday its
first no-confidence vote since taking power in July.
It holds a commanding majority in the lower house and
analysts expect it to survive, but a junior coalition member has
not officially supported the government yet. []
The crown, whose lower yield has made it a funding currency
in intra-region trades recently, was steady at 25.228 per euro.
Stocks were mixed in the region, with Prague <> extending
gains and Warsaw <> down. In Poland, the zloty <EURPLN=>
dipped 0.45 percent, and analysts expected the psychological 4.0
per euro level to provide resistance to further weakening.
Dealers have said trade has thinned in the final weeks of
the year, which has at times exaggerated some moves. Central
European currencies have also been unable to break a correlation
with their reference currency, the euro, which has been
pressured by a debt crisis in the euro zone periphery.
Rate hike expectations had boosted the forint 2 percent this
month, helping it outperform peers. But analysts have said the
zloty and crown would provide more value going into 2011 based
on a better economic outlook and lower risk.
"Long PLN/CZK no longer looks attractive at these levels but
we continue to watch PLN/HUF for opportunities to buy," RBC said
in a note on Monday.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.228 25.228 0% +4.32%
Polish zloty <EURPLN=> 3.998 3.98 -0.45% +2.65%
Hungarian forint <EURHUF=> 274.78 272.58 -0.8% -1.61%
Croatian kuna <EURHRK=> 7.383 7.379 -0.05% -1%
Romanian leu <EURRON=> 4.29 4.287 -0.07% -1.23%
Serbian dinar <EURRSD=> 106.4 106.22 -0.17% -9.89%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -3 basis points to 78bps over bmk*
7-yr T-bond CZ7YT=RR +6 basis points to +82bps over bmk*
10-yr T-bond CZ9YT=RR +2 basis points to +88bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +1 basis points to +360bps over bmk*
5-yr T-bond PL5YT=RR 0 basis points to +339bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +296bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -2 basis points to +628bps over bmk*
5-yr T-bond HU5YT=RR +1 basis points to +562bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +475bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1257 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, writing by Jason Hovet; Editing
by Hugh Lawson)
