BUDAPEST: Central European assets firmed on Tuesday as investors unwound selling positions in emerging markets and Hungary agreed an increase of 15 percent to its minimum wage, a move seen boosting economic growth.
The deal by government and employers to boost wages and cut payroll taxes in 2017 and in election year 2018 could increase inflation risks.
Hungary's central bank, however, retained its dovish bias, keeping its 0.9 percent base rate on hold, but cutting its overnight lending rate by 15 basis points to 0.9 percent.
"This means interbank rates cannot rise above the base rate," one Budapest-based dealer said.
"Right now there is excess liquidity in markets. With the BUBOR (interbank rate) 35 basis points below the base rate, the lower limit on the top of (short-term) interest rates can become effective only later."
The bank said it was ready to loosen monetary conditions further if warranted by inflation, and that it aimed to help the economy through helping money market rates decline.
The forint, after a slight easing following the rate cut, quickly recovered.
It traded at 307.92 against the euro at 1451 GMT, firmer by 0.4 percent from Monday. The zloty gained 0.3 percent.
The forint was helped by the deal, which could lead to the biggest wage rise since 2002.
It could help economic growth, which slowed down in the third quarter, pick up to near 3 percent in 2017 from forecasts of 2.15 percent this year, analysts said.
A covering of earlier short positions helped Warsaw.
Polish assets had been the worst hit in Central Europe in previous days by selling as Donald Trump's shock win in the US presidential election on Nov. 8 led to a sell-off in global debt markets and emerging markets.
Warsaw's blue-chip stock index led gains, rising 1.1 percent.
Government bond yields tracked euro zone and US peers lower.
Poland's 10-year benchmark yield dropped 3 basis points to 3.51 percent. Hungary's corresponding yield fell 11 basis points to 3.5 percent.
The bids for Romania's 10-year bonds also dropped by 11 basis points to 3.48 percent even though the country rejected all bids at a 6-year bond tender on Monday, its second failed auction since the US elections.
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