BUDAPEST/PRAGUE: The dinar eased on Thursday after Serbia's central bank surprised by cutting its main interest rate to help economic growth.
The Czech crown tested 3-week lows against the euro as some investors were disappointed over the European Central Bank's (ECB) message after its meeting, while Polish government bond prices extended this week's gains.
The ECB flagged that it was preparing to scale back its stimulus programme, but its signal was too weak to buoy expectations that tigthening could come soon and encourage the Czech central bank (CNB) to raise its own rates further.
"(The CNB) might want to wait for the ECB's next update on APP (asset purchases)," said Jiri Polansky, analyst of Ceska Sporitelna.
"We think that the crown is near levels where some investors might close their positions as there is very muted chance for the currency to strengthen further," he added.
The Serbian central bank (CBS), meanwhile, reduced Central Europe's highest main interest rate to The Serbina central bank 3.75 percent, after keeping it steady at 4 percent for more than a year.
All 10 analysts and traders polled by Reuters had expected an unchanged rate, and the bank had repeatedly said that uncertainties in global markets justified caution in policies.
But on Thursday it said it wanted to give "additional support to lending activity and economic growth".
Earlier this week, Prime Minister Ana Brnabic and the International Monetary Fund said Serbia's growth could fall behind earlier forecasts.
The dinar eased 0.1 percent against the euro to 119.6 by 1432 GMT, drifting away from four-year highs set late last month at 118.78.
It was helped in recent months by seasonal foreign currency inflows, including financing for infrastructure projects.
But analysts in a Reuters poll this week projected a 3 percent weakening for the next 12 months, while other regional currencies in the region are seen firming.
"Strong RSD (dinar) has combined with low oil prices in providing a small, if surprise, opportunity for the CBS to cut rates," said Peter Attard Montalto, an analyst at Nomura.
"The economy has relatively tight fiscal policy this year whilst it does not have the (European Union) structural fund boon its neighbors do, and so there is some scope for a small amount of easing," he added.
The cut swings the balance towards central bank doves in the region.
The CNB became the first in the region and the European Union last month to raise interest rates in more than five years, but its 2 percent inflation target is the lowest in Central Europe.
Hungary's central bank has flagged further monetary easing and the Polish central bank has not indicated concerns over inflation either.
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