BUDAPEST: Central European currencies weakened on Wednesday amid concern the Federal Reserve will signal a rise in US interest rates when its policy meeting ends later in the day.
Rising rates in the US would make Central Europe's high-yielding assets relatively less attractive, while low or negative inflation rates argue for looser central bank policies in the region.
Czech producer prices fell an annual 4 percent, more than expected, in February. Polish consumer prices fell 0.8 percent, according to data released on Tuesday.
The zloty slipped 0.2 percent against the euro by 0928 GMT. The forint shed 0.1 percent, although at 4.302, the zloty still trades near its highest levels this year. Warsaw's main equities index was steady.
Polish assets were largely unaffected by a warning from financial regulators on Tuesday that a proposed bill to convert foreign-currency mortgages into zloty could cost local lenders up to eight times their 2015 profits.
That would drag down Polish banks, but it also means the bill is likely to be softened "and the banks shouldn't have been hurt too much," KBC said in a note.
A surge in value by the Swiss franc has hit Central European borrowers, who took out mortgages denominated in francs when Swiss rates were low and the franc relatively weak. The stronger franc makes the loans much more expensive. Governments have tried to solve the problem partly at the expense of banks.
Legislation in Romania that would enable mortgage holders to stop repaying loans heightened risks to the country's economic stability, Romanian central bank Governor Mugur Isarescu said on Tuesday.
In Hungary, short-term market rates are being pushed up by diminishing liquidity related to foreign-currency conversions. Billions of euros worth of swaps sold to banks to convert foreign currency mortgages are expiring, overshadowing the expiry of commercial bank deposits with the central bank.
As Hungarian markets re-opened after a two-day holiday, government bond yields fell a few basis points from Friday, but demand dropped and yields rose at an auction of three-month Treasury bills.
Austrian-based Raiffeisen, a bank with several units in the region, said its Croatian arm most Swiss franc loan conversions there to occur in the first quarter of the year.
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