* Zloty hits highest since Dec. 6, moves away from 4.0/euro
* Polish inflation seen at 2.8 pct in November
* Forint up, cbank says one rate rise may not be enough
(Adds fixed income, details)
By Marius Zaharia
BUCHAREST, Dec 14 (Reuters) - The Polish zloty outperformed
central European currencies on Tuesday, briefly hitting a
one-week high on expectations that inflation data due later in
the day would raise the likelihood of an interest rate rise in
the next few months.
The zloty broke through the psychologically important level
of 4.0 to the euro late on Monday and could firm further if
November's annual inflation turns out to be in line with or
better than the 2.8 percent consensus forecast, dealers said.
On Tuesday, it rose to 3.98 per euro, its highest since Dec.
6, but then met resistance and retreated slightly.
"Today's data ... is likely to provide further potential for
a zloty recovery," analysts at Commerzbank wrote in a note.
"A further rise of 2.8 percent year-on-year ... would mean
that inflation would exceed the central bank target of 2.5
percent for the second consecutive time, calling the hawks among
the MPC (Monetary Policy Council) members to the fore."
KBC said risks were for the data to surprise on the upside,
supporting its rate hike scenario for next week.
Poland's key interest rate has stood at a record low 3.5
percent for 17 months. Analysts polled by Reuters expect
borrowing costs to remain flat until the end of the year, while
the forward rate agreements market <PLNFRA> fully prices in a 50
basis point increase in the next three months.
At 1029 GMT, the zloty <EURPLN=> was up 0.3 percent on the
day at 3.987 per euro. the Hungarian forint <EURHUF=> was also a
touch higher, the Romanian leu <EURRON=> was flat and the Czech
crown <EURCZK=> was slightly weaker.
Dealers in Prague said the crown should remain in a
weakening bias for the rest of the year as investors square
positions and buy euro/crown. The unit had gained more than 7
percent this year but has lost 2.7 percent since November.
"It makes sense, since we haven't really seen any correction
for the last year and a half," a Prague-based dealer said.
Czech central bank Vice-Governor Mojmir Hampl told Reuters
that downside risks from the euro zone debt crisis to the
central bank's outlook were increasingly likely to accumulate
and policymakers could loosen monetary policy. []
Bonds edged up across the region in thin pre-holiday trade.
FIDESZ CRITICISED
In Hungary, central bank Governor Andras Simor told the Wall
Street Journal that one interest rate hike would not be enough
to get inflation back on target, but not "many" steps were
needed in a tightening cycle that began last month.
[]
The central bank delivered a surprise 25 basis point rate
hike on Nov. 29, the first rate rise in the region.
Simor also criticised the government's plan to give itself
control over the appointment next March of four new members to
the seven-strong Monetary Council, which sets interest rates.
Analysts say the new members are likely to reflect the
government's dovish bent on monetary policy and there has been
speculation the central bank's inflation target could be raised.
The move is one of several that have shaken markets since
the Fidesz government took power earlier this year.
Investors are giving the government the benefit of the doubt
for now and Hungarian assets have been steady lately, but any
sign of failure to cut the budget deficit could spark another
selloff, analysts say.
On Monday, Hungary rolled back a 1997 pension reform,
effectively allowing the government to seize up to $14 billion
in private pension assets to cut the budget deficit while
avoiding austerity measures. []
The OECD said the government could have cut state spending
instead. []
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.125 25.107 -0.07% +4.75%
Polish zloty <EURPLN=> 3.987 3.999 +0.3% +2.93%
Hungarian forint <EURHUF=> 276.29 276.7 +0.15% -2.15%
Croatian kuna <EURHRK=> 7.414 7.405 -0.12% -1.41%
Romanian leu <EURRON=> 4.288 4.289 +0.02% -1.18%
Serbian dinar <EURRSD=> 105.5 106.61 +1.05% -9.12%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
2-yr T-bond CZ2YT=RR -1 basis points to 82bps over bmk*
7-yr T-bond CZ7YT=RR -2 basis points to +77bps over bmk*
10-yr T-bond CZ9YT=RR -3 basis points to +85bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR -3 basis points to +360bps over bmk*
5-yr T-bond PL5YT=RR -7 basis points to +330bps over bmk*
10-yr T-bond PL10YT=RR -4 basis points to +299bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR -9 basis points to +640bps over bmk*
5-yr T-bond HU5YT=RR -11 basis points to +573bps over bmk*
10-yr T-bond HU10YT=RR -6 basis points to +494bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1128 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;
Editing by Catherine Evans and Susan Fenton)
