(Updates throughout)
PRAGUE/BUCHAREST, Nov 20 (Reuters) - Central European
currencies recovered from early falls against the euro on
Thursday as a Swiss interest rate cut widened the yield
advantage of the region's markets.
Currencies dipped in early trade as equities in the region
tracked an overnight fall of Asian shares to 5-1/2 year lows,
due to worries that the global economy is set for a deep
slowdown which can hit appetite for assets in emerging markets
The Hungarian forint <EURHUF=>, which has gone through a
relative period of stability since being hammered in October,
recouped an early loss to inch up 0.5 percent to 270.22 to the
euro by 1410 GMT, leading regional gains.
The Polish zloty <EURPLN=> was up 0.1 percent from levels
seen at Wednesday's domestic close to 3.837 per euro. The Czech
crown added 0.14 percent and Romania's leu <EURRON=> rose 0.1
percent.
"Emerging European currencies benefited from Swiss National
Bank's rate decision but the trend remains one of depreciation,"
Piraeus Bank said in a research note, adding that risk aversion
in global markets remained a threat. "...We believe that the
hard days are far from over," it said.
In a third cut in six weeks, the SNB surprised markets by
lowering its target band for the 3-month Swiss franc LIBOR to
0.50-1.50 percent from a previous 1.50-2.50 percent range.
Analysts and dealers said further rate cuts in western
Europe and elsewhere to help economies could lend further
support to high-yielding central European currencies.
However, Hungary is expected to suffer a recession next
year, which could show a 1.1 percent economic contraction in
2009, according to an analysts' poll []. Economists
expect rate cuts to start only in the first quarter of 2009.
On Thursday, a senior analyst of rating agency Moody's was
quoted as saying that the economy of Poland, which is more
insulated than other economies in the region due to stronger
domestic demand, may slow significantly. []
Poland's central bank which will decide on interest rates
next week, is under pressure from companies to cut interest
rates. But analysts said it had still room to resist the calls
despite weak industrial output data published on Thursday.
[]
Among Central European countries, Hungary has already
secured an international rescue package to help it refinance
expiring debt. Latvia, which has gone into recession, is the
latest country to seek financial help from international bodies
[].
Analysts say Romania could be next in line if it gets into
trouble financing its high current account deficit.
European Union lawmakers agreed to more than double the
bloc's funds available for member states in financial trouble to
25 billion euros [].
The zloty has been the hardest hit currency in the region in
the last few weeks. Dealers and analysts said investors closed
long zloty positions as interest rate cuts get factored in and
doubts grow about the government's ability to meet its target of
adopting the euro in 2012.
"The euro prospect may be the argument for a sharp
depreciation on the zloty," said Lukasz Wojtkowiak, FX analyst
at Millennium Bank in Warsaw.
Prime Minister Donald Tusk said last week it would be
difficult to adopt the common currency without political
consensus, and on Thursday signalled he may be ready to push
back the target date [].
Hungary's finance minister said on Thursday Hungary may
start talks in late 2009 on entering the ERM-2, the testing
ground before adopting the euro.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 25.633 25.67 +0.14% +3.26%
Polish zloty <EURPLN=> 3.837 3.841 +0.1% -6.57%
Hungarian forint <EURHUF=> 270.22 271.61 +0.51% -6.87%
Croatian kuna <EURHRK=> 7.135 7.108 -0.38% +2.61%
Romanian leu <EURRON=> 3.829 3.832 +0.08% -6.95%
Serbian dinar <EURRSD=> 88.138 87.518 -0.71% -11.91%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +23 basis points to 176bps over bmk*
5-yr T-bond CZ5YT=RR +7 basis points to +151bps over bmk*
10-yr T-bond CZ9YT=RR +6 basis points to +103bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +20 basis points to +432bps over bmk*
5-yr T-bond PL5YT=RR +1 basis points to +367bps over bmk*
10-yr T-bond PL10YT=RR +11 basis points to +303bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR 0 basis points to +1094bps over bmk*
5-yr T-bond HU5YT=RR -3 basis points to +1012bps over bmk*
10-yr T-bond HU10YT=RR +1 basis points to +953bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1510 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
Spot FX rates
Eastern Europe spot FX <EEFX=> Middle East spot FX <MEFX=>
Asia spot FX <ASIAFX=> Latin America spot FX <LATAMFX=>
Other news and reports
World central bank news [] Economic Data Guide <ECONGUIDE>
Official rates [] Emerging Diary []
Top events [] Diaries [] Diaries Index []
(Reporting by Reuters bureaus, writing by Jason Hovet and
Marius Zaharia; editing by David Stamp)
