* FX weaker, markets await Wednesday rate decisions
* Political battles hurt Romania, court rule eyed
(Updates throughout)
By Dagmara Leszkowicz and Marius Zaharia
WARSAW/BUCHAREST, Sept 28 (Reuters) - The zloty and the leu
led currency losses in central Europe on Tuesday as investors
positioned for interest rate decisions in Poland and Romania and
a court ruling on one of Bucharest's key austerity moves.
In Poland, the central bank's Monetary Policy Council (MPC)
started a two-day meeting on Tuesday and the vast majority of
analysts expect flat rates for the 15th consecutive month. But
traders expect a more hawkish tone from the bank.
Polish forward rate agreements <PLNFRA> -- which show where
markets project rates in coming months -- show a likely 33 basis
point rise by the year-end, or one guaranteed hike from the
current record low of 3.5 percent and a small chance of more.
In Romania, all analysts polled by Reuters see its central
bank also keeping rates flat, at 6.25 percent, but risks to its
vital International Monetary Fund-led bailout deal may cause
market turmoil and force the bank to hike rates later this year.
By 1333 GMT the leu <EURRON=> and the zloty <EURPLN=> were
down 0.4-0.5 percent. Hungary's forint <EURHUF=> fell 0.1
percent and the Czech crown <EURCZK=> was flat in thin trade as
the country's market was closed for a public holiday.
"In Poland, some players are squaring long positions (on the
zloty) only to build new ones tomorrow as the central bank could
signal more hawkishness," one dealer in Bucharest said. "In
Romania, people are just betting on a weaker leu."
The constitutional court is expected to rule on Wednesday on
a pension reform bill that is key to the aid deal and a
rejection could force Romania to hike taxes again, which would
further dent an economic recovery that is lagging peers.
Even if the bill is cleared, the fragile government faces a
battle to stay in power at a no-confidence vote in parliament,
probably in late October.
FISCAL POLICY KEY
The Hungarian National Bank left its borrowing costs flat at
a record low of 5.25 percent on Monday. It said it might raise
rates if investors' attitude to the country worsens but added
fiscal policy for the next year would be key. []
The Fidesz government has promised, under EU pressure, to
cut next year's budget deficit to below 3 percent of GDP.
Details of the budget are likely to be published after municipal
elections on Oct. 3.
The average yield at a three-month T-bill auction in Hungary
fell by 9 basis points as the debt agency sold 40 billion
forints as planned on Tuesday. []
In Poland, the final draft of the 2011 budget showed on
Monday that the budget deficit was set to exceed previous
estimates in both 2010 and 2011. []
Poland's new 2011-2014 debt strategy showed public debt will
not breach the key 55 percent of GDP level that would trigger
automatic spending cuts. [] But some economists say
debt levels could exceed the ceiling.
Romania said its January-August budget deficit was 4.1
percent of GDP, compared with a 6.8 percent full-year target,
and analysts said reaching the 2010 goal would be difficult.
Markets are likely to punish severely any deviation from
spending cut targets. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.575 24.578 +0.01% +7.09%
Polish zloty <EURPLN=> 3.97 3.952 -0.45% +3.38%
Hungarian forint <EURHUF=> 277.52 277.14 -0.14% -2.58%
Croatian kuna <EURHRK=> 7.291 7.29 -0.01% +0.25%
Romanian leu <EURRON=> 4.265 4.248 -0.4% -0.65%
Serbian dinar <EURRSD=> 105.54 105.69 +0.14% -9.15%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -2 basis points to 101bps over bmk*
7-yr T-bond CZ7YT=RR +1 basis points to +104bps over bmk*
10-yr T-bond CZ9YT=RR -1 basis points to +116bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -2 basis points to +399bps over bmk*
5-yr T-bond PL5YT=RR +7 basis points to +367bps over bmk*
10-yr T-bond PL10YT=RR +3 basis points to +324bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -4 basis points to +562bps over bmk*
5-yr T-bond HU5YT=RR +7 basis points to +523bps over bmk*
10-yr T-bond HU10YT=RR +5 basis points to +457bps 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 1600 GMT.
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(Reporting by Reuters bureaus, writing by Dagmara Leszkowicz
and Marius Zaharia, editing by Tim Pearce)
