* Polish retail sales top expectations, boost zloty
* Polish yields edge higher, rate hike eyed in May or June
* Hungary bonds shade firmer, Czech bond auction heavily bid
(Adds bonds, rate outlook in Poland)
BUDAPEST, April 27 (Reuters) - The Polish zloty firmed after
stronger-than-expected retail sales data on Wednesday, hovering
around two-month highs, while Polish bonds eased slightly at the
short end as the data increased the odds of a rate hike in May.
Analysts are split over the timing of the next rate hike in
Poland, eastern Europe's biggest economy, with most of them
expecting a 25 basis-point hike in either May or June.
"In our opinion the (retail) data confirm the risk of a
strengthening of inflation impulses in the economy, but it is
likely not enough to convince the MPC (Monetary Policy Council)
to hike rates already in May," BZ WBK analysts wrote in a note.
Traders said forward rate agreements are pricing in around
100 basis points of rate hikes over the next 12 months. The
Polish central bank raised its key rate earlier this month by 25
basis points, the second such move since the start of its
tightening cycle in January.
Polish retail sales <PLPMIY=ECI> rose 9.4 percent on an
annual basis in March, slowing from a 12.2 percent increase the
previous month but well above expectations for a 7.2 percent
rise. []
First-quarter economic growth may have reached 4.5 percent,
roughly in line with the previous three months, a deputy head of
the Polish statistics office was quoted as saying on Wednesday.
[]
At 1012 GMT, the zloty <EURPLN=> traded at 3.936 versus the
euro. It was hovering around two-month highs it scaled on
Tuesday as it continued to rise on the finance ministry's plans
to sell some funds from the European Union on the spot market to
support monetary policy and keep a lid on inflation.
[]
The Czech crown <EURCZK=> was a shade weaker on the day
after touching an 11-week high in early trade, boosted by rising
appetite in emerging markets as the dollar stayed weak.
The centre-right government, as expected, survived a
no-confidence vote late on Tuesday, boosting market sentiment as
it passed the first in a series of tests in the coming months as
it pushes through reforms, dealers said. []
The newest rate-setter on the Czech central bank's board,
Lubomir Lizal, said interest rates would have to rise from the
current record low but it was not clear when. []
Dealers said the Czech currency was mainly tracking the
region.
"It's the dollar story and growing risk sentiment on
emerging markets still," said Roman Fol, dealer at
Raiffeisenbank in Prague.
"Poland is helping the whole region," he added, due to the
EU funds conversion story.
The Hungarian forint <EURHUF=> and the Romanian leu
<EURRON=> traded basically flat.
An International Monetary Fund team started a review of
Romania's new two-year aid deal on Wednesday, which will
continue through May 9. []
HUNGARIAN BONDS HOLD GAINS
The Czech finance ministry sold 6.8 billion crowns worth of
2014 bonds at an auction on Wednesday. []
Hungarian bonds were a shade firmer, still supported by
optimism over the government's fiscal reform plans, which
investors hope will lead to a steady decline in the country's
debt over the medium term. That optimism has fuelled a rally in
Hungarian bonds in the past few weeks.
"Bonds are a shade firmer today, with yields down by a few
basis points, but turnover is low," a trader said.
"The market is eyeing the Fed."
The European Central Bank raised benchmark rates earlier
this month. In contrast, the Fed's policy-setting Federal Open
Market Committee, in a statement due at about 1630 GMT, is
expected to indicate it will pursue its $600 billion bond-
buying programme through to its scheduled conclusion at the end
of June. []
It is also expected to reiterate that it will keep interest
rates unusually low for "an extended period".
Very loose U.S. monetary policy has spurred an inflow of
funds into emerging markets including eastern Europe.
"I think for emerging markets in general (comments from the
Fed) will be bullish as we will see further talk of interest
rates on hold for an extended period," said Peter Attard
Montalto at Nomura in London.
"However for CEE in particular I think people are looking
far more at country idiosyncracies and as such we may well not
see a huge effect after a few days."
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2011
Czech crown <EURCZK=> 24.087 24.049 -0.16% +3.79%
Polish zloty <EURPLN=> 3.936 3.941 +0.13% +0.56%
Hungarian forint <EURHUF=> 264.25 264.25 0% +5.2%
Croatian kuna <EURHRK=> 7.35 7.353 +0.04% +0.41%
Romanian leu <EURRON=> 4.074 4.071 -0.07% +3.9%
Serbian dinar <EURRSD=> 100.1 100.62 +0.52% +5.82%
*Benchmark is German bond equivalent.
All data taken from Reuters at 1212 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR +7 basis points to -7bps over bmk*
7-yr T-bond CZ7YT=RR +11 basis points to +50bps over bmk*
10-yr T-bond CZ9YT=RR +1 basis points to +72bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR 0 basis points to +318bps over bmk*
5-yr T-bond PL5YT=RR +3 basis points to +312bps over bmk*
10-yr T-bond PL10YT=RR +2 basis points to +287bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -3 basis points to +443bps over bmk*
5-yr T-bond HU5YT=RR -3 basis points to +416bps over bmk*
10-yr T-bond HU10YT=RR -1 basis points to +375bps over bmk*
*Benchmark is German bond equivalent.
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(Reporting by Reuters bureaus; Writing by Gergely
Szakacs/Krisztina Than; Editing by Catherine Evans and Susan
Fenton)
