* Hungary tax plans hurt stocks but forint holds gains
* Higher Polish inflation reading boosts zloty, hits bonds
* Monetary tightening debate started, but still early
(Updates throughout)
By Marius Zaharia and Jason Hovet
BUCHAREST/BRATISLAVA, Oct 13 (Reuters) - Hungary's tax plans
hit Budapest stocks on Wednesday, while the Polish zloty rose
and bonds fell as a jump in inflation data bolstered the case
for an interest rate hike.
Shares in Hungary's Magyar Telekom <MTEL.BU> lost 3 percent
and oil and gas group MOL <MOLB.BU> fell 1 percent after Prime
Minister Viktor Orban announced new crisis taxes, including
3-year tax plans for the retail, telecom and energy sectors to
bring in tens of billions of forints in budget revenue.
[]
Orban was outlining long-awaited details of how the
government plans to meet its targets to cut the budget deficit
to the EU's 3 percent of GDP ceiling by next year. He said a
full economic action plan would be sent to parliament on Monday.
The details are seen as key for Budapest to win back the
trust of the markets and avoid having to go back to the IMF for
aid after walking away from talks this summer. The breakdown in
the talks led to a market slide that was only reversed last
month when the government announced its budget pledges.
The Hungarian forint <EURHUF=> weakened after Orban's
comments on Wednesday but held onto gains for the day, bidding
up 0.4 percent at 272.9 to the euro by 1448 GMT.
Hungarian bond yields rose on the long-end of the curve by
up to 5 basis points, but dealers said investors looked to still
be waiting on more details.
"It is a bit of a mixed picture... But they are in a tricky
position; they desperately need to cut the budget to ensure
credibility," said RBC strategist Nigel Rendell.
"(Markets) are expecting that (Orban) lives up to his word.
I think (people) will be happier if there was more on the
spending cuts than tax revenue side."
The forint has been trading at its highest levels since May,
and while markets are wary about the signals being sent by the
Fidesz government, comments over the past month have suggested a
stronger commitment to fiscal discipline.
"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 earlier in the day.
INFLATION WATCH
In Poland, inflation shot up to the central bank's target of
2.5 percent in September, above analysts' estimates and fuelling
expectations that Poland could be the first in central Europe to
tighten monetary policy. Many forecast a rate hike coming
already this year. []
Polish bond yields rose by up to 9 basis points after the
data, while the zloty <EURPLN=> held gains to rise 0.6 percent
on the day. Elsewhere, the Czech crown <EURCZK=> edged up 0.2
percent and the Romanian leu <EURRON=> dipped 0.1 percent.
Czech rate setter Kamil Janacek told a Reuters Central
European Investment Summit on Tuesday that Czech interest rates
may rise sooner than expected due to improving data, but that
there was no need to hike borrowing costs before the end of the
year. []
Debate over whether central banks should consider raising
interest rates from record lows due to rising inflation is
slowly emerging in central Europe, although worries over a
fragile economic recovery and budget deficits remain in the way
-- especially in the more fragile states of Hungary and Romania.
Hungary central bank Vice-Governor Ferenc Karvaltis told the
Reuters summit on Wednesday that weak domestic demand and benign
wage dynamics allowed the key rate to stay on hold, although he
added that possible upside risks to inflation existed.
[
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 24.444 24.496 +0.21% +7.67%
Polish zloty <EURPLN=> 3.931 3.956 +0.64% +4.4%
Hungarian forint <EURHUF=> 272.9 274.05 +0.42% -0.93%
Croatian kuna <EURHRK=> 7.329 7.322 -0.1% -0.27%
Romanian leu <EURRON=> 4.277 4.273 -0.09% -0.93%
Serbian dinar <EURRSD=> 106.18 106.21 +0.03% -9.7%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -3 basis points to 92bps over bmk*
7-yr T-bond CZ7YT=RR +4 basis points to +100bps over bmk*
10-yr T-bond CZ9YT=RR +4 basis points to +111bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +12 basis points to +391bps over bmk*
5-yr T-bond PL5YT=RR +2 basis points to +362bps over bmk*
10-yr T-bond PL10YT=RR +3 basis points to +321bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -3 basis points to +542bps over bmk*
5-yr T-bond HU5YT=RR -8 basis points to +499bps over bmk*
10-yr T-bond HU10YT=RR +5 basis points to +446bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1648 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/Jason
Hovet; Editing by Hugh Lawson)
