* Polish, Czech PMIs down, but still strong
* Data points to inflationary pressures, rate hikes to come
* Hungary's PMI jumps to 57 points, but analysts cautious
By Gabriela Baczynska
WARSAW, March 1 (Reuters) - The manufacturing sector in
Poland and the Czech Republic weakened slightly last month but
remained firmly in positive territory, data showed on Tuesday,
pointing to interest rate increases ahead.
The Purchasing Managers' Index (PMI) for Poland fell for a
second consecutive month to a worse-than-expected 53.8 points in
February [], while the Czech reading dipped to 59.8
points from a January record-high of 60.5 points.
[]
Hungary's PMI, compiled using different methodology, jumped
to 57 points last month from 54.7 points in January, driven by
growing exports backed by demand from Germany. []
"Although we are seeing a slight easing in manufacturing in
central and eastern Europe in general, the bottom line is that
it is still well above 50 points, which implies that the
manufacturing sector is expanding," said Nigel Rendell, senior
emerging markets strategist at RBC Capital Markets.
A PMI reading above 50 indicates a pick-up in manufacturing
while a figure below 50 shows a contraction.
A slower pace of growth in output and new orders dragged the
Polish and Czech headline figures lower, but the data also
showed further improvements in the employment situation in the
two former communist economies.
"In Poland, the domestic economy is buoyant, demand is
strong. In Hungary and the Czech Republic it is rather
external-driven by strong demand in Germany, by far the most
important story for central and eastern Europe," Rendell said.
Other data on Tuesday showed euro zone manufacturing grew at
its fastest pace in nearly 10 years but prices also rose at
their quickest rate in at least 14 years. []
POLISH, CZECH RATES TO RISE
The Polish and Czech PMI data also revealed commodity-driven
inflationary pressures. Murat Ulgen economist with HSBC, who
oversee the data, said there were signs growing input prices
were likely to translate into second round effects in Poland,
increasing pressure for monetary tightening.
The Polish central bank raised borrowing costs by 25 basis
points in January, bringing the main interest rate to 3.75
percent, and is due to announce at its next monthly meeting on
Wednesday whether it will tighten policy further.
Analysts are evenly split over whether the bank will hike
rates in March or in April, according to a Reuters poll.
[]
"Poland has more work to do on (monetary tightening) in the
course of this year. The same goes for the Czech Republic in the
second quarter, or definitely by the middle of the year,"
Rendell said.
The Czech Republic's main rates are at a record low of 0.75
percent after a quarter-point cut in May last year but the
bank's board already looks deeply divided on whether to raise
them now, with analysts expecting no move in March.
In Hungary, data released on Tuesday showed producer price
inflation <HUPPIY=ECI> eased to 7 percent year-on-year in
January from 8.1 percent in December. []
Hungary's base rate remained flat in February at 6 percent
and analysts expect it to be at the same level at end-2011.
"In Hungary, corporates are coming from such a depressed
position that any optimism is exaggerated through PMIs, given
external demand," said Peter Attard Montalto, an economist at
Nomura International in London.
"But I would certainly not read anything into it about
growth rebounding any stronger," he added.
The forint led emerging European currencies on Tuesday,
supported by Budapest's reform package due to be presented later
in the day that is expected to save billions of dollars for the
state coffers. []
(Reporting by Mirka Krufova and Jana Mlcochova in Prague,
Marton Dunai in Budapest and Gabriela Baczynska in Warsaw,
writing by Gabriela Baczynska; editing by Patrick Graham)
