* Risk-off trade pulls CEE down
* Poland holds rates, bonds firmer on short-end
* Hungary spending plan seen positive but details required
(Updates after Polish rate decision)
By Sandor Peto and Jason Hovet
BUDAPEST/PRAGUE, Nov 23 (Reuters) - Emerging European
currencies dipped on Tuesday as investors pulled back from
riskier assets, and the zloty dipped after the Polish central
bank left interest rates unchanged.
The rate decision was in line with the majority expectation
but disappointed some who bet Poland's central bank would be the
first in central Europe to start undoing two years of policy
loosening. Government bond prices edged up after the rate
decision.
Markets looked to safer assets, like the U.S. dollar, on
Tuesday following an artillery clash between North and South
Korea. The incident dented investors' appetite for risk,
including in central Europe which had already been hurt by
continued uncertainty over Ireland's debt crisis.
An announcement by Hungary, which has struggled to convince
investors over its fiscal plans, that it would launch a package
of savings measures totalling as much as $4 billion did little
to boost markets.
The zloty <EURPLN=> dropped 0.3 percent and the Hungarian
forint <EURHUF=> erased some early losses to bid at 275.35
against the euro by 1431 GMT, down by about 0.1 percent from
Monday.
Central European stocks fell by up to 1.4 percent, while
Hungarian government bonds moved sideways with yields staying
near the 11-week highs reached on Monday. Shorter-dated Polish
bonds firmed, sending yields down, after the rate meeting.
"The decision was in line with markets' expectations so I
expect the relief rally now," a Warsaw-based bond dealer said.
Only eight of 18 analysts polled by Reuters last week had
expected Poland to start tightening this month, with the rest
forecasting a rate rise sometime in the first quarter of 2011.
STABLE RATES
Central European currencies have weakened this month due to
fears the euro zone periphery's battle against high debt will
spread to Portugal or Spain after first Greece, then Ireland
have needed emergency funds this year.
But a new round of quantitative easing by the United States
is expected to push investors into emerging markets in the
coming months as they chase higher growth and yields. The zloty
would benefit from this given Poland's growth outlook is good
relative to its EU peers, analysts said.
This has been seen as a major concern for Polish rate
setters, keeping the slim majority on the monetary policy
council (MPC) leaning toward stable rates for now.
"The MPC will probably wait for a decision until the release
of the central bank's new inflation report (in January) or the
moment when macroeconomic indicators clearly show that a
scenario threatening inflation in the future is emerging," Piotr
Bielski, economist at bank Zachodni WBK, said.
In Hungary, Economy Minister Gyorgy Matolcsy said the
government would present a reform package in February to deliver
new savings worth 600 billion-800 billion forints ($3 billion-$4
billion). []
Traders said markets needed more details about the plan.
Hungary and neighbouring Romania's budget and debt trends
have often made their markets more vulnerable to news about the
euro zone debt crisis than Czech and Polish markets.
Romania's leu <EURRON=> fell 0.3 percent versus the euro to
4.309. The Czech crown <EURCZK=> was flat after earlier gains,
benefitting from safe-haven flows within the region after
bouncing off technical levels around 24.70.
The crown has led gains in central Europe this year, backed
by fundamentals and the government's budget-cutting drive.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.688 24.689 0% +6.6%
Polish zloty <EURPLN=> 3.959 3.948 -0.28% +3.66%
Hungarian forint <EURHUF=> 275.35 274.99 -0.13% -1.82%
Croatian kuna <EURHRK=> 7.397 7.369 -0.38% -1.19%
Romanian leu <EURRON=> 4.309 4.297 -0.28% -1.66%
Serbian dinar <EURRSD=> 106.86 106.75 -0.1% -10.28%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +5 basis points to 80bps over bmk*
7-yr T-bond CZ7YT=RR +11 basis points to +80bps over bmk*
10-yr T-bond CZ9YT=RR +2 basis points to +98bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +3 basis points to +374bps over bmk*
5-yr T-bond PL5YT=RR +7 basis points to +357bps over bmk*
10-yr T-bond PL10YT=RR +5 basis points to +328bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1533 CET.
Currency percent change calculated from the daily domestic
close at 1700 GMT.
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(Reporting by Reuters bureaus, writing by Sandor Peto and Jason
Hovet; Editing by Catherine Evans and Susan Fenton)
