BUDAPEST: The kuna and the forint set the trend for weaker central European currencies on Tuesday after Croatia slashed interest rates and a Hungary's central bank issued a dovish statement.
The zloty led the fall due to uncertainty over policies as the opposition Law and Justice, seen as a less business-friendly party than the ruling Civic Platform, is expected to win Poland's elections on Sunday.
The currency touched its weakest levels for almost three weeks against the euro, and by 1338 GMT eased to 4.254.
The forint reversed a mild early firming and fell 0.1 percent, easing in tandem with the Czech crown and the leu.
China's soft growth figures have curbed risk appetite in global markets.
The resulting continued fall in commodities prices does not hurt economic growth but helps keep inflation low in the European Union's emerging markets where central bank interest rates are at record lows.
Hungary's central bank kept its main interest rate on hold at 1.35 percent as expected at its meeting.
It reiterated that maintaining low interest rates for a long time could help it meet its inflation goal. It was a new element in its statement that monetary conditions could remain loose over its entire forecast horizon, 6-8 quarters.
Hungarian government bond yields dropped a few basis points from the morning.
But the central bank's dovish signal was not powerful enough to reverse a rebound of government bond yields which have risen 20-30 basis points since last week, after a decline to record lows, one Budapest-based trader said.
"Sentiment is slightly negative now," the trader said.
"I cannot see strong hopes concerning the European Central Bank's (Thursday) meeting either," the trader added. "If it does not signal stepping up its asset buying, the market mood can worsen."
The kuna retreated from an 11-day high against the euro after Croatia's central bank halved its lombard rate to 2.5 percent and cut its discount rate to 3 percent from 7 percent to stem a firming of the kuna.
It keeps the kuna in managed float, allowing fluctuations of roughly up to 5 percent. Its market operations have much bigger influence on the unit than its interest rates.
Demand for the kuna has increased due to bill which forces Croatian commercial banks to convert Swiss franc loans into the local currency and then into euros.
Comments
Comments are closed for this article.