BUDAPEST: The forint set 3-week highs on Monday, outperforming Central European peers, after plans by the Hungarian central bank (NBH) to push down long-term interest rates triggered bond buying.
The forint traded at 310.8 against the euro at 1009 GMT, firmer by 0.4 percent. The zloty was steady and the Czech crown marginally firmer.
The NBH announced last week that it would launch interest rate swap selling and mortgage bond buying programmes next year to encourage cheap fixed-rate mortgage lending.
The plans, interpreted as further monetary easing by the region's most dovish central bank, initially weakened the forint to seven-month lows at 314.2.
But the sell-off got reversed as the plans led to a buying of government bonds, which pushed the middle and the end of their yield curve to record lows last week.
"Data on foreigners' bond holding comes with a few days of delay," one Budapest-based trader said.
"The data to be published this week could show a rise to above 3.6 trillion forints (from 3.56 trillion forints)," the trader added.
Hungarian bond yields changed little from Friday's fixing, with 10-year papers trading at 2.05 percent.
Central European currencies had support from recent strong economic data from Germany, the region's main export market.
Germany's Social Democrats's agreement to hold talks with Angela Merkel on renewing their outgoing coalition government was viewed positively.
"In theory, it is good if Germany has a stable government... though I am not sure that this is what is actually driving the forint," said Erste analyst Orsolya Nyeste.
Another Budapest-based trader said some investors reversed forint buying as the market digested the NBH announcements.
"It is still a long time until the NBH programmes start, and their market impact remains to be seen," the trader said.
The NBH's loose policy stands in contrast with a shift towards hawkish bias in the region, and that remains a negative factor for the forint, Nyeste said.
Polish central banker Eryk Lon, however, told state news agency PAP that fresh economic forecasts increased the chances of interest rates remaining stable for at least the next 12 months.
Elsewhere, the Serbian central bank lifted the dinar to 119.31 against the euro from 12-week lows at 119.72, by selling euros in the market.
The dinar had been weakened in the past weeks by demand for euros due to the issue of Serbia's first savings bonds, partly denominated in euro.
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