BUDAPEST: Central European currencies and equities fell on Wednesday as concerns over the global economy weighed on sentiment ahead of a meeting of the Polish central bank.
The bank is expected to keep rates on hold but its comments may underpin expectations for a cut later in the first quarter of 2015 as anaemic inflation and sluggish European growth are seen triggering further monetary policy easing in the region.
The latest sign of pressure for easing was Hungary's December consumer price data, released on Wednesday, which showed a 0.9 percent annual decline in prices, compared with analysts' forecast for a 0.4 percent fall.
"FRAs (forward rate agreements) signal a chance for a rate cut already at the next meeting of the Hungarian central bank on Jan. 27," one Budapest-based fixed income trader said.
"It will depend on what the Polish central bank and the European Central Bank do," the trader added.
The Hungarian forint shed half a percent against the euro by 0840 GMT after the figures. The Polish zloty was down by a quarter of a percent.
The Czech crown led the regional decline, shedding 0.6 percent.
The crown is being affected by speculation the Czech central bank could try to weaken it, for example by setting a lower floor for the currency than the 27 to the euro floor it set in late 2013.
The crown, however, rebounded late on Tuesday when central bank Governor Miroslav Singer said there was no need to react quickly to deflationary pressures, but his comments did not end speculation that the crown regime may change.
Dealers said some investors closed speculative long euro positions after the comments.
"I am keen to see how the market will read Singer's message. I think we will stay above (a EUR/CZK rate of) 28. We could get back to 28.250 and we could stay around that level," one dealer said. The crown was trading at 28.254.
While equities also fell across the region due to global economic concerns, the monetary easing speculation continued to fuel a rally in government bonds. The World Bank cut its 2015 growth forecast, despite the plunge in oil prices.
Raiffeisen said in a note that Polish bond yields, particularly on short-term debt, were likely to rise after Wednesday's interest rate decision.
"So the expected yield at tomorrow's bond auctions are likely to see slightly higher levels compared to yesterday's closing levels," it added.
The Polish 10-year bond yield dropped 3 basis points to 2.30 percent.
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