BUDAPEST: The zloty outperformed range-bound central European peers on Thursday on expectations that the Polish central bank would keep interest rates on hold for several months to come, while the dinar was steady after a surprise rate cut in Serbia.
Serbia's central bank cut its benchmark interest rate on Thursday by 50 basis points to 8.5 percent, helped by low inflation and expectations that ECB policy easing would spur investor appetite for riskier assets.
The majority of analysts in a Reuters poll had expected the bank to keep interest rates on hold. But some projected a small rate cut to support growth.
Serbia was hit by catastrophic floods in May and the central bank will have to assess the negative impact of the floods on economic growth and also on inflation, as the agricultural sector was hit hard.
At 1043 GMT, the dinar was steady at 115.29 to the euro. Poland's zloty led gains in the region with a 0.2 percent increase, while the forint underperformed others with a 0.1 percent decline.
Poland, just like Romania and the Czech Republic, has stopped cutting interest rates after an easing cycle that helped economies of the region return to a growth track. The Polish bank has said it would likely keep rates on hold until September at 2.5 percent.
Polish central bank Governor Marek Belka was quoted as saying on Wednesday that there was a "very low" probability of a rate cut, despite a risk of negative price growth in July.
"Today zloty should remain stable in a narrow range ahead of tomorrow's inflation data," said Marek Cherubin, a currency dealer at BPH in Warsaw. "In terms of possible rate cuts in Poland, on Wednesday Belka cooled the expectations ... but still, we need take into consideration this opportunity."
Inflation in the emerging economies of the European Union remains subdued, fresh data showed this week.
Romania's inflation edged down to a fresh low of 0.9 percent on the year in May from April's 1.2 percent, due to falling food prices, staying well below the central bank's 1.5-3.5 percent target, the National Statistics Board said on Thursday.
Analysts expect Romania to keep rates unchanged at a low of 3.5 percent until the first quarter of 2015.
HUNGARY CUTS BOND SALE
Hungary sold 71.5 billion forints ($315 million) worth of government bonds at an auction on Thursday, below its original offer for 75 billion, as demand was much lower than two weeks ago when investors submitted a record amount of bids.
Hungary's debt markets have rallied over the past weeks, buoyed by a central bank plan to shift funds out of its main two-week liquidity instrument into longer-dated paper and the prospect of monetary easing by the European Central Bank.
But one trader said the impact of those factors was less potent by Thursday's tender and investors were looking for the next impulse to set the tone.
The forint was a shade weaker in the day but a currency dealer said the weaker bond auction had no market impact.
"It was clear that the forint was unable to firm below 305 today, so it looks like we are set to remain in the region of 306 per euro levels," the trader said.
The main drivers for the forint in the next weeks will be a landmark ruling by Hungary's supreme court on foreign currency loans, which the government plans to use as a legal template to get rid of the toxic mortgages.
Investors also watch whether the National Bank of Hungary continues its rate cut cycle after 22 successive monthly cuts that brought the benchmark to a record low 2.4 percent, below that in regional heavyweight Poland.
Hungary's consumer prices fell an annual 0.1 percent in May following a decline the previous month.
The figure raised the likelihood that the National Bank of Hungary (NBH) would cut interest rates again at its next meeting on June 24, after 22 consecutive rate cuts to 2.4 percent.
"We believe that the central bank's June inflation report will support the Monetary Council's dovish bias and the monetary policy easing cycle is likely to continue," said analyst Gergely Hudecz at Credit Suisse.
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