BUCHAREST: Central European currencies rose against the euro, with the Czech crown rebounding off a five-and-a-half month low on Wednesday, and the zloty, trading on priced-in expectations of a Polish rate cut, also gained slightly.
A Reuters poll forecast Poland's Monetary Policy Council (MPC) will cut interest rates for a third consecutive month later on Wednesday, by 25 basis points, to support a once-resilient economy that is now slowing sharply.
By 1040 GMT, the zloty edged up 0.2 percent to 4.116 against the euro. Analysts said a bigger-than-expected rate cut could push the currency as low as 4.14.
The crown firmed 0.4 percent to 25.501, recovering from its weakest since July 23 hit the previous session. It was edging closer to the level at which many expect the Czech central bank - which has cut interest rates to virtually zero - to intervene to weaken the currency.
Regional stocks also edged up, Budapest leading the gains with 0.8 percent.
"We think that the intervention is unlikely to come in the near term but we keep our call that the central bank will act if the crown starts to firm below the 25.50 level during the first quarter," said Radomir Jac, chief analyst for Generali PPF Asset Management.
Many Prague-based dealers and analysts believe any sustained strengthening of the crown below 25 would trigger intervention.
Annual Czech consumer price growth slowed to 2.4 percent in December, data showed earlier on Wednesday, giving the central bank less reason to worry about the potential impact on inflation of a weaker crown..
In Romania, domestic consumption fell 0.7 percent on the year in the third quarter of 2012, a less extreme contraction than suggested by a preliminary reading of 1.6 percent but still underlining the weakness of the EU's second-poorest economy.
The leu was flat at 4.4 per euro, while the Hungarian forint was up 0.3 percent at 291.37.
Hungarian bond yields lingered around Tuesday's level. "People are waiting for the new benchmark bonds (on Thursday) and adjusting positions," a fixed income trader said. Polish bonds weakened mildly ahead of the rate decision.
Hungary will auction new 3-year, 5-year and 10-year benchmark bonds on Thursday, the 2016/D, 2018/A and 2023/A.
Central banks in Poland, Hungary and the Czech Republic have responded to economic slowdown by cutting interest rates since the middle of 2012. Only Romania has held rates even as the economy edges towards recession as policymakers battle above-target inflation.
Center>Copyright Reuters, 2013
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