(Changes dateline, prices, recasts with late fx losses)
By Marius Zaharia
BUCHAREST, Oct 16 (Reuters) - The Hungarian forint slipped
on Thursday, but outperformed on the back of the European
Central Bank's pledge to boost euro liquidity in the country, as
growth worries hit central European stocks and currencies.
The forint has been knocked in the past week, and lost more
than 7 percent at one point on Wednesday when concerns over
domestic banks' funding abilities intensified, leading a
sell-off in the region.
Hungarian banks have a higher proportion of foreign currency
borrowing than others in central Europe, and investors have been
selling forint-based assets despite government and central bank
efforts to assure markets the system is well capitalised.
Hungary's central bank (MNB) said early on Thursday it had
signed a deal with the ECB on repurchase transactions which will
allow the MNB to borrow up to 5 billion euros [],
initialising boosting the forint before it cut gains.
"[] is clearly positive because it reduces the
risk of a lack of euro liquidity in the local banking sector,
which is important," said Martin Blum, head of emerging markets
economics and forex strategy at UniCredit in Vienna.
"But it doesn't change the medium-term outlook that there
will be a sharp slowdown in economic growth in Hungary," he
added, which pointed to more forint weakening.
By 1529 GMT, the forint <EURHUF=> was bid at 269.25 to the
euro, down 0.9 percent from Wednesday's close, and last traded
<EURHUF=D2> at 269.2 per euro, off a two-year low of 272.
In Romania, where exposure to foreign debt is also seen as a
concern, leu <EURRON=> held virtually steady at 3.792 per euro.
But dealers said the leu was also helped by the central
bank's recent pledges to prevent high volatility which scared
off investors, as the bank is well positioned with reserves of
about 26 billion euros. The bank has intervened several times in
recent weeks to prop up the leu, dealers said.
NO ICELAND
Analysts have made clear that while Hungary is more exposed
than the Poles, Czechs and Slovaks, it is still seen as more
stable than Ukraine, Romania, or Bulgaria and is a different
case to Iceland, which is near economic collapse.
Market falls the last two days followed a rally at the start
of the week sparked by world government pledges to shore their
banking sectors. However, fears quickly turned to economies that
will likely slow deeper than expected.
Poor U.S. output data on Thursday added to global growth
concerns, contributing to late losses for stocks and currencies.
Stock indices fell 6 percent in Prague <>, 8.6 percent in
Budapest <>, and 3 percent in Warsaw <> on Thursday.
Poland's zloty <EURPLN=> fell 2.8 percent to 3.61 versus the
euro, and the Czech crown <EURCZK=> lost 1.2 percent to 25.01.
Serbia's dinar <EURRSD=> and Croatia's kuna <EURHRK=> were
steady; both currencies have been hit by heavy demand for euros
this month. Serbia's central bank has spent more than 150
million euros this month to stem dinar declines [].
Central European government bond markets remained at near
standstill as buyers stayed away. The lack of activity has
prompted the Hungarian and Czech governments to scale back bond
issues this year, along with other measures to lift the market.
Hungary's central bank said on Thursday it had signed a deal
with primary bond dealers to boost market liquidity, under which
the bank will hold auctions to buy government securities from
primary dealers []. Czechs had adopted liquidity
boosting measures earlier this week.
"We already feel the positive impacts, there are only bids
in the markets instead of offers but nobody wants to sell at the
current levels," one Budapest fixed income trader said.
Czech market makers have mostly stopped quoting government
papers, and dealers worried that a flood of sellers could come
to the market as Hungary's market has been mainly shut.
----------------------MARKET SNAPSHOT-------------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2008
Czech crown <EURCZK=> 25.010 24.703 -1.24% +5.61%
Polish zloty <EURPLN=> 3.606 3.513 -2.65% -0.15%
Hungarian forint <EURHUF=> 269.250 266.950 -0.86% -6.49%
Croatian kuna <EURHRK=> 7.139 7.155 +0.22% +2.56%
Romanian leu <EURRON=> 3.792 3.802 +0.26% -5.92%
Serbian dinar <EURRSD=> 83.028 82.678 -0.42% -5.42%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +78 basis points to 106bps over bmk*
5-yr T-bond CZ5YT=RR +59 basis points to +93bps over bmk*
10-yr T-bond CZ9YT=RR +34 basis points to +77bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +49 basis points to +352bps over bmk*
5-yr T-bond PL5YT=RR +33 basis points to +288bps over bmk*
10-yr T-bond PL10YT=RR +27 basis points to +238bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +20 basis points to +880bps over bmk*
5-yr T-bond HU5YT=RR +15 basis points to +818bps over bmk*
10-yr T-bond HU10YT=RR +7 basis points to +593bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1729 CET.
Currency percent change calculated from the daily domestic
close at 1500 GMT.
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(Reporting by Reuters bureaus, writing by Marius Zaharia)
