BUDAPEST/BUCHAREST: The leu eased on Tuesday while other Central European currencies were mixed ahead of a meeting of the Romanian central bank that is expected to deliver a relatively dovish message.
The latest meetings of the European Central Bank and then the Czech central bank surprised many people by giving less-hawkish-than-expected guidance, even though the latter increased its key rate last week for the second time in three months.
Romania may also try to curb expectations for rate hikes, some analysts said.
Seven out of nine analysts in a Reuters poll projected that its main rate will stay 1.75 percent and only two forecast a 25 basis point hike to fight increasing inflation pressures in the robustly growing economy.
"We anticipate a dovish tightening by the central bank with the narrowing of the standing facilities corridor being widely expected but we see a more cautious message from the central bank to trim some aggressive rate hike expectations for 2018," ING analysts said in a note.
"A dovish tightening from the central bank today could offer more support for Romanian government bonds," they added.
The leu eased 0.1 percent to 4.5974 against the euro by 1000 GMT. Romanian bond yields mostly dropped mildly according to Reuters data, while Polish yields edged up.
The Polish central bank is also seen holding fire at its meeting on Wednesday but it is expected to start to increase interest rates by late next year.
Expectations for higher rates contributed to a rally of Polish banking sector shares.
The Warsaw bourse's banking sector index reached its highest levels since May 2015, before the conservative Law and Justice party came to power in late 2015 and knocked down bank stocks with some of its measures and policy pledges.
Good third-quarter results, including a rise in credit volumes, from Polish banks, particularly Bank Millennium and MBank, help stocks in the sector, said Grzegorz Skowronski, trader of Wood&Company.
"It seems that the economic rebound translates into a rise of demand for credits and helps banks' results," he said.
"Also it seems that there are more hawkish voices in the MPC (central bank Monetary Policy Council), and one can not rule out that the MPC may start to talk about rate rises next year, despite earlier denials," he added.
Budapest's main equities index briefly hit a record high, boosted by a rally of small-cap firms controlled by Lorinc Meszaros, a tycoon close to the government.
Appeninn and Opus initially rose by about 15 percent and later plunged and traded by over 10 percent lower from Monday.
"These are highly speculative papers," one Budapest-based trader said.
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