BUDAPEST: Hungary's forint led a weakening of Central European currencies on Tuesday as a decline in crude oil prices fed expectations of low inflation and central bank rate cuts in the region.
Hungary and the region's biggest economy, Poland, had negative annual inflation rates in the past months and their economies have been slowing.
"Inflation is the point where the falling crude price has the biggest impact in the region, and if you think it over, the logical conclusion is rate cuts (by the Polish and Hungarian central banks)," one Budapest-based currency dealer said.
The forint shed 0.4 percent against the euro by 0854 GMT to 319.14. The currency is still off a 3-year low, hit on Monday at 321.02 after Hungary's PMI manufacturing index fell sharply in December, leading a similar fall across Central Europe.
Hungarian job figures released on Tuesday showed the first rise in the unemployment rate in two years, to 7.2 percent in November from 7.1 percent in October.
The forint has underperformed the zloty in the past weeks as returning to rate cuts would be a bigger change in central bank policy in Hungary than in Poland, Commerzbank said in a note.
Polish markets were closed for holiday on Tuesday.
But the zloty eased 0.2 percent in international trade even though one Polish rate-setter, Anna Zielinska-Glebocka, said on Monday Poland's central bank was likely to leave interest rates unchanged in January and perhaps in February.
The yield on 10-year bonds in the Czech Republic, where central bank interest rates are at zero, dropped 1 basis point to a record low of 0.677 percent.
In Hungary, where the central bank's main interest rate has been unchanged at 2.1 percent since a cut in July, the 10-year yield fell 8 basis points to 3.54 percent.
"Some people expect a central bank rate cut and some people don't," one Budapest-based trader said. "We are tracking core market yields which have declined a lot (in the past days)."
Equities extended losses across the region.
Falling crude prices continued to weaken Russia's rouble , triggering a 0.6 percent fall in the share price of Hungarian pharmaceuticals Richter.
The stock fell even though Richter moved closer to launching its Cariprazine drug in the United States, which would reduce its heavy reliance on the Russian market.
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