BUCHAREST: Emerging European currencies firmed on Thursday ahead of the outcome of the European Central Bank meeting, despite signs of economic weakness and looming interest rate cuts in the region, but the Hungarian forint was flat as lik e ly new hurdles to IMF talks weighed.
The euro, which regional currencies track due to their close economic ties with the single currency bloc, rallied in the previous session on expectations the ECB would unveil bond-buying plans to tackle the euro zone's debt crisis, boosting appetite in riskier assets.
But traders said the unit was vulnerable to disappointment, and could drag emerging European assets with it.
"We in the region are all waiting on the ECB," said one trader in Bucharest. "Still, the euro saw some hefty gains yesterday and that may take some steam off today."
By 0 9 45 GMT, the Polish zloty added 0.6 percent to the euro, the C zech crown 0 .4 percent and the R omanian leu 0 .1 percent. The Hungarian forint w as flat. Shares rose 0.2 to 1 percent across the region.
In Hungary, reports said the International Monetary Fund will seek painful spending cuts in return for a financing deal, that would collide with the government's economic policies.
This added to reports that the European Commission was preparing a legal challenge against Hungary's financial transaction tax, a revenue mainstay of the 2013 budget, ind icating ne w hurdles to Budapest's efforts to secure a financing backstop.
"External factors may remain the key driver of Hungarian markets in the short term, but domestic factors may contribute to an underperformance in local assets as concerning fiscal news may emerge in the coming weeks," Citibank said in a note.
"We stick to our view that a deal will eventually be concluded by early 2013."
Still, Hungary's government sold 62.5 billion forints worth of bonds at its auction, lifting its original 45 billion offer due to high demand which focused on the shorter 3- and 5-year maturities. The average yields at the auction were a few basis points below secondary market levels before the sale.
RATE EASING
Romania will also hold a debt tender later in the day, its first domestic debt sale after it issued 750 million euros worth of June 2018 Eurobonds earlier this week.
While the E urobonds bolstered Romania's funding buffer, markets will want to see if they will also drive domestic yields lower after debt managers rejected all bids at three tenders last month.
In Poland, the region's powerhouse where data points to slowing economic growth, the central bank left interest rates unchanged at 4.75 percent on Wednesday and although it switched to an easing bias, it gave no hint whether a cut could come in October or November.
"The MPC's statement cannot be clearly interpreted as a commitment to a rate cut in October, as some had expected," Bank Pekao wrote in a note. "This means that the MPC still isn't convinced as to the necessity of easing monetary policy."
In the Czech Republic, data showed industrial output beat market expectations in July, but analysts still said the central bank could cut interest rates as early as this month.
The Czech parliament rejected on Wednesday the government's plan to raise sales and income taxes, posing a threat to Prime Minister Petr Necas who insists the hikes are necessary to cut the budget deficit. However, traders said they weren't too worried about a cabinet fall.
Comments
Comments are closed.