* Forint leads small gains, bets for tight budget increase
* Polish September inflation data eyed
(Adds fixed income, detail, quote)
By Marius Zaharia
BUCHAREST, Oct 13 (Reuters) - Hungary's forint led the
currency gains in central Europe on Wednesday and bonds firmed
up on growing bets for tighter fiscal policy, although the mood
could reverse quickly if a 2011 budget draft is not deemed
credible.
A local website reported on Tuesday that Hungary plans tough
public sector job cuts and may impose taxes on the energy sector
to keep on track with its target to bring the budget deficit
below 3 percent of gross domestic product. []
Prime Minister Viktor Orban said he plans additional
measures to ensure it meets this year's target. []
While markets are still wary about the signals being sent by
the Fidesz government, which suspended talks with international
lenders over its 20 billion euro bailout deal this summer, the
latest comments suggest a stronger commitment to fiscal
discipline.
Gains in Hungarian assets will be limited, however, with
many investors sticking to the sidelines before more details of
the 2011 budget details are made available.
"These announcements and a credible budget plan could easily
send EUR/HUF towards the 270 level ... if global sentiment stays
supportive," Raiffeisen Bank said in a note.
At 0941 GMT, the forint <EURHUF=> was bid 0.3 percent higher
at 273.24 per euro. The Romanian leu <EURRON=> was flat while
the Czech crown <EURCZK=> and the Polish zloty <EURPLN=> were
slightly weaker.
Hungarian bond yields dropped 4-8 basis points across the
curve.
"All eyes (are) on Hungary's budget announcement and any
details on possible telco and energy taxes and indeed what the
European Union has to say about any new taxes," said Simon
Quijano-Evans of Cheuvreux.
Orban is expected to hold a speech on Hungary's outlook at
1300 GMT.
POLISH INFLATION
Markets will also closely watch Polish inflation data for
September at 1200 GMT, with bonds especially sensitive to the
figure due to expectations for a 25 basis point interest rate
hike by the end of the year.
Analysts expect inflation to have stood at 2.3 percent last
month, up from 2 percent in August and compared with the central
bank's 2.5 percent target. []
"If inflation comes in at 2.1-2.3 percent, then the market
reaction should be neutral," Pekao bank said in a note.
Polish bond yields were 2 basis points higher.
Inflation rose in the Czech Republic, Romania and Hungary as
well, data showed earlier this week, sparking more debate on
whether central banks should hike rates, although analysts say
it is more likely policymakers are more concerned about a
fragile economic recovery.
Czech rate-setter Kamil Janacek said the bank may hike rates
if exports remain strong, while Hungary's central bank Deputy
Governor Julia Kiraly warned that the next rate decision would
be tough as the bank will need to weigh existing inflation
pressures against low domestic demand. []
[]
Romania and Czech Republic posted widening current account
deficit figures on Wednesday, but no impact was seen on the
markets, which are focusing more on fiscal performance.
[] []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.502 24.496 -0.02% +7.41%
Polish zloty <EURPLN=> 3.954 3.956 +0.05% +3.79%
Hungarian forint <EURHUF=> 273.24 274.05 +0.3% -1.06%
Croatian kuna <EURHRK=> 7.324 7.322 -0.03% -0.2%
Romanian leu <EURRON=> 4.277 4.273 -0.09% -0.93%
Serbian dinar <EURRSD=> 106.09 106.21 +0.11% -9.62%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -5 basis points to 91bps over bmk*
7-yr T-bond CZ7YT=RR -1 basis points to +95bps over bmk*
10-yr T-bond CZ9YT=RR -2 basis points to +105bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +2 basis points to +379bps over bmk*
5-yr T-bond PL5YT=RR +1 basis points to +359bps over bmk*
10-yr T-bond PL10YT=RR 0 basis points to +316bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -5 basis points to +540bps over bmk*
5-yr T-bond HU5YT=RR -9 basis points to +498bps over bmk*
10-yr T-bond HU10YT=RR -7 basis points to +434bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1141 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
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(Reporting by Reuters bureaus, Writing by Marius Zaharia;
Editing by Hugh Lawson)
