BUDAPEST/BUCHAREST: Romanian government bond yields fell to record lows on Tuesday as a drop in the country's inflation heightened expectations monetary policy would continue to ease in Central Europe.
Prices are barely rising or actually falling in Europe's main economies, and the prospect of bond buying by the European Central Bank is weighing on Central European interest rates.
Romanian figures showed the annual inflation rate slowed to 0.8 percent in December from 1.3 percent in November. That re-ignited a rally in the country's government bond markets.
Romania's 5-year benchmark bond yields was quoted at 2.301/2.401 percent, down 16 basis points.
"A correction may take place by the end of the day," one Bucharest-based dealer said.
The Romanian central bank cut its main interest rate to a record low of 2.5 percent early this month. Most analysts expect the rate to fall another quarter of a percentage point in February.
In Poland, bonds were trading at record low levels after a region-wide bond rally in recent weeks. The yield on 5-year bonds dropped two basis points to 1.83 percent, even though analysts expect the Polish central bank to keep rates on hold at its meeting on Wednesday.
The zloty eased 0.1 percent against the euro by 0913 GMT.
"The markets are still pricing an aggressive rate cut. I think there won't be any tomorrow, which means the zloty may strengthen after the sitting," Bank BGZ analyst Piotr Poplawski said.
The Czech crown eased 0.1 percent to 28.418 to the euro but was off the five-year lows of 28.52 reached by Monday.
The crown fell more than 2.5 percent in the past week as low Czech inflation and comments from central bankers fuelled expectations the bank might seek a way to weaken the crown further. In late 2013, the central bank set a limit on its value of 27 to the euro.
In stocks, shares of Hungarian pharmaceutical Richter fell 1 percent to trade around 3.356 forints, near its the nine-month low, after the Russian rouble weakened further. Russia is Richter's key market.
Slovakia is gearing up to selling a 12-year euro benchmark bond.
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