BUDAPEST: Poland's government bond yields plumbed new record lows in early trade on Thursday as the slowing Central European recovery fuelled expectations of more monetary easing in the region's biggest economy.
After the central bank held its benchmark interest rate at 2.5 percent on Wednesday, in line with consensus forecasts, Governor Marek Belka said interest rate cuts were very likely.
Some dealers and investors had predicted a cut of 25 or even 50 basis points as soon as this month.
Polish bonds firmed on Wednesday and extended their gains early on Thursday, with the 10-year yield sinking to 2.9455 percent and the five-year yield also dropping to record lows. "Unless economic indicators in the area surprise massively to the upside soon there (is) probably no avoiding an NBP rate cut next month," Commerzbank said in a morning note.
"As this is already priced in, the pressure on PLN is likely to be limited. However, should the conflict in Ukraine deepen again, EUR-PLN will rise above 4.21 once more."
Hungary will offer 55 billion forints worth of government bonds at an auction on Thursday, with the tender results due at 0930 GMT.
"I do not expect any major surprises. I think the auction will be good, with bonds sold around secondary market levels," a Budapest-based fixed income trader said.
"We will see if the ECB does something surprising after the auction and whether that has an impact on the secondary market."
Central European currencies were little changed in early trade, with the zloty down 0.1 percent to the euro. The forint, the region's most volatile unit, gained 0.1 percent.
"We expect the (Polish central bank) to cut rates by 25 bps at its next meeting on Oct. 8, keeping EUR/PLN rangebound today before European Central Bank decides what actions it will take to avoid deflation in the euro zone," SEB said in a note.
The region's currencies and stocks gained on Wednesday as Ukrainian and Russian leaders said their views on ending fighting in eastern Ukraine were "very close".
"Unless Poroshenko and the new parliament are willing to cede its claims of sovereign control over eastern Ukraine, tensions are very likely to flare again," SEB said.
"Enjoy the (rouble) and CEE rally while it lasts. The next couple of days will give us an indication how long the ceasefire will hold."
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