BELGRADE: The Polish zloty, the most liquid currency in Central Europe, was a touch weaker on Wednesday on persistent expectations for an interest rate cut early next month.
Uncertainty about whether Greece will secure a debt deal with its euro zone partners and concerns about the situation in eastern Ukraine also made investors in Central Europe cautious.
Poland was due to release industrial output and retail sales data, but that was unlikely to change market expectations for a rate cut when the central bank meets on March 4 to ward off deflation.
"Whereas we currently forecast to see one 25 basis point rate cut (to 1.75 percent), the risk is slanted towards a stronger cut in interest rates," Raiffeisen said in a note.
The zloty traded at 4.1897 to the euro or 0.02 percent weaker from Tuesday's close of 4.1887. Romania's leu traded at 4.4487 to the euro or, 0.3 percent weaker than Tuesday's close of 4.4482.
Many market participants expect Hungary, Poland and Romania to cut interest rates next month to lift inflation, now near zero, and help economic growth pick up.
In Serbia, the dinar was under pressure after the sale of a loss-making steel mill collapsed, a blow to government efforts to rein in spending under the terms of a loan deal with the International Monetary Fund.
The dinar weakened 0.5 percent in early trade to 121.75 against the euro compared with 121.15 on Friday's close. Markets in Serbia were closed on Monday and Tuesday for a national holiday.
Czech bonds remained under pressure as seen throughout February. The yield on 10-year paper was at 0.77 percent on Wednesday, almost doubling since Feb. 2 when it was at record lows.
"In relative terms against EUR assets, and also absolute, the yields now seem reasonable to us, and (we) consider any more spikes to higher yields as overdone to the other side now," Dalimil Vyskovsky, a fixed income trader at Komercni Banka, said.
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