BUDAPEST/WARSAW: The forint rebounded from one-year lows against the euro and Hungarian long-term government bonds gave up some of their gains as investors digested news about new central bank measures to boost liquidity in local debt markets.
Both the forint and the zloty traded 0.1 percent firmer from Monday against the euro at 1408 GMT.
The zloty was also off one-year lows as comments from Polish central bank rate setter candidates at their hearing in parliament committees did not boost expectations for further monetary easing.
Hungary's central bank had been widely expected to announce unconventional policy measures to push long-term government bond yields lower, thus helping commercial bank lending rates fall.
The bank said it would phase out its two-week deposit facility by the end of April in a move that could trigger up to 800 billion forint ($2.7 billion) in additional demand from the bank sector for government debt.
It will try to nudge the funds released from the deposits into government bonds by raising the amounts offered at its interest rate swap tenders used by banks to hedge their bond buying, and making their pricing more attractive.
"The measures are strong, but there is some disappointment as investors are not yet convinced that the funds will go into bonds rather than short-term instruments like the central bank's 3-month deposits," one Budapest-based trader said.
The government bond yield curve steepened slightly rather than the flattening targeted by the central bank, even though yields were lower from Monday's fixing along the curve.
The yield on 3-year benchmark bonds dropped 13 basis points to 1.88 percent, and the 10-year yield fell 8 basis points to 3.35 percent.
Poland's 2-year bond yield also dropped, by 6 basis points to 1.33 percent, as assets in Warsaw rebounded from steep falls early this year due to worries over tension between the new government and the European Commission.
Warsaw's bluechip equities index rose 2.6 percent.
It hit its lowest levels for almost seven years on Monday, but rebounded after the Polish finance minister assuaged fears that the government may want to scrap private pension funds like Hungary did years ago.
The parliament committee hearings of new central bankers backed by the government passed without fuelling expectations for further monetary easing.
The terms of most central bank rate setters will soon expire and the government, which has urged looser monetary policy, has the right to replace them.
Elsewhere in Central Europe, the Serbian central bank kept its main interest rate on hold at 4.5 percent rather than cutting it further as concerns over a weakening dinar took priority over below-target inflation.
The dinar, which the central bank repeatedly supported in the past weeks with euro selling in the market, still eased by 0.1 percent to 122.24 against the euro.
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