BUDAPEST: Central European assets mostly eased slightly on Wednesday amid concerns over what the Federal Reserve might have to say about the future direction of US interest rates when its monetary policy meeting ends later in the day.
Rising rates in the United States 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.
The forint had fallen 0.2 percent against the euro by 1425 GMT and Romania's leu eased 0.1 percent.
The zloty, after an initial easing, tracked a rebound in the dollar against the euro.
Polish government bond yields, however, tracked peers in the euro zone's peripheries higher, with the 10-year yield rising 4 basis points to 2.93 percent.
Share prices were also mostly easier in the region. In Warsaw, bank stocks led the decline, with PKO BP, the biggest Polish lender, down 1.4 percent.
Polish financial regulators warned on Tuesday that a proposed law to convert foreign currency-denominated mortgages into zlotys could cost local lenders up to eight times their 2015 profits.
That would drag down Polish banks, but it also means the scope of the bill is likely to be softened, KBC said in a note .
Prime Minister Beata Szydlo said the bill proposed by the country's president "may yet be amended or improved."
The bill, coupled with new tax burdens imposed on banks could lead to heightened stress in the sector, Standard and Poor's analyst Felix Winnekens told Reuters.
He also said Poland's constitutional court crisis was already reflected in the country's debt rating which S&P cut in January.
Meanwhile 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 three-month Treasury bills were sold at an average yield of 1.26 percent, up from 1.17 percent last week, with short-term market yields rising due to the expiry of billions of euros worth of swaps which the central bank sold to banks in 2014 to help a conversion of foreign currency mortgages.
"The fall in forint liquidity has pushed (interbank) interest rates to the top of the central bank's interest rate corridor, 2.1 percent," one trader said.
Most analysts expect the Hungarian central bank's base rate to be left unchanged at 1.35 percent at its Monetary Council meeting next Tuesday, but forward rate agreements have priced in a 10 basis point cut, the trader said.
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