BUDAPEST: Central European currencies firmed against the euro on Wednesday, boosted by relief that Poland's central bank kept interest rates on hold despite some expectations of a cut.
Even the leu rebounded from initial losses and firmed a bit by 1613 GMT even though the Romanian central bank cut its benchmark interest rate by 25 basis points to 2.25 percent as expected at its meeting.
The Polish central bank kept its main interest rate on hold at 2 percent.
The zloty firmed after the decision and by 1613 GMT it was up a quarter of percent to 4.164 against the euro.
Analysts polled by Reuters last week forecast a roughly 70 percent chance that rates would remain flat in February, with a 25 percent chance for a 25 basis-point cut.
But expectations for a rate cut were much stronger among investors than among analysts, one Budapest-based dealer said.
"I heard about an internal survey by a brokerage in which half of their clients projected a rate cut," the dealer said, adding that relief after the rate decision lifted the zloty.
It did not retreat even after the bank's governor, Marek Belka, said a rate cut in March was likely.
Belka also said the bank would take into account in its
decisions that the European Central Bank's asset buying programme, announced last month, was buoying the currency.
The asset purchases in the euro zone are also expected to support Central Europe's relatively high-yielding assets.
Risk aversion has decreased, which helps the zloty, while Belka's strong signal of a future rate cut helped government bond yields retreat after an initial rise, said Pawel Radwanski, bond market strategist at Bank BGZ in Warsaw.
Hungarian central bank's chief economist Daniel Palotai said looser policy may be needed, after two rate setters said earlier this week that any rate cut would hinge on the its March inflation report.
But the forint firmed even more than the zloty, by half a percent, to 8-week highs at 307.50.
"The world remains flooded by money and simply there is no reason now to sell the forint," the Budapest-based dealer said.
Analysts in a Reuters survey projected that the region's currencies will retreat in coming months as central banks cut interest rates further.
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