BUDAPEST: The zloty jumped and Central European government bonds slipped on Wednesday after the Polish central bank said a 50-basis-point cut in interest rates it delivered earlier in the day would end its monetary easing cycle.
The bank's meeting caused wobbles in the region's currency and government bond markets. The cut, which lowered the main rate to a record low 1.5 percent, was twice the size most analysts had forecast.
It weakened the zloty by 0.3 percent against the euro and pushed the yields of most Polish government yields lower. But after the central bank said it would not cut rates further, the zloty gained 0.6 percent. At 1546 GMT the zloty traded at 4.148 versus the euro, up half a percent from Tuesday.
Polish bonds, meanwhile, gave up all the gains posted after the rate cut. Five-year bonds traded at a yield of 1.9 percent at 1540 GMT, up from the day's low of 1.77 percent and Tuesday's close at 1.84 percent.
Hungarian bonds tracked their Polish peers.
"Trade has been busy, with selling following an initial buying," one Budapest-based fixed income trader said. "The Polish comments do not mean, though, that there will be no rate cut in Hungary."
Inflation is negative in both Hungary and Poland, giving central banks room to reduce their record-low interest rates. Romania is also expected to reduce borrowing costs.
A Reuters poll conducted before the Polish rate cut showed that analysts expect monetary easing to curtail gains by the region's currencies in coming months. The forint might shed almost 3 percent to the euro by August.
The kuna gained 0.1 percent to 7.659 against the euro as Croatia launched the sale of 1.5 billion euro 10-year bond at mid-swaps plus 255 basis points.
The currency of Croatia, which has been in recession for years, hit 11-year lows against the euro two weeks ago at 7.73.
It recovered to two-month highs by Wednesday, helped by euro selling by the central bank last month and expectations for the euro bond sale, and is expected to rise further.
"Market participants now expect seasonal appreciation to begin, driven by tourism," one Zagreb-based dealer said.
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