BUDAPEST: Central European currencies fell on Tuesday, with the forint and zloty retreating from close to 5-week highs against the euro after regional shares joined a global fall and Hungary's central bank slashed its inflation forecasts.
Shares across Europe weakened as mining companies fell sharply in response to a drop in copper prices due to worries over China's economic slowdown.
Europe's second-biggest copper producer, KGHM slumped almost 5 percent in Warsaw, leading the index of the bourse's top stocks lower by 1.7 percent.
Budapest's main index shed 1.9 percent. The bourse's most liquid stock, OTP Bank fell 3 percent.
The zloty shed 0.6 percent versus the euro by 1445 GMT. The forint eased 0.5 percent and the Czech crown weakened by 0.2 percent.
"The equities fall weakened the forint to 310.50-60 against the euro, but the MNB (National Bank of Hungary) sent it past 311," one Budapest-based currency dealer said. It was later quoted at 311.93/312.23
"It has reduced its forecast for (average) inflation next year quite significantly," the dealer added.
The bank slashed the forecast to 1.9 percent from 2.4 percent and said inflation would rise near its 3 percent target only in the second half of 2017, almost half a year later than earlier believed.
It also said that it could keep its main rate, which it kept on hold at 1.35 percent at Tuesday's meeting, longer than expected now.
"So those who had expected a rate hike will think it over now," one Budapest-based fixed income trader said.
The main rate could still rise to 1.65 percent by the end of 2016, but "downwards risks are strengthening", Takarekbank analysts said in a note.
Such a risk could increase if the European Central Bank props up its bond buying, helping Central European debt yields decline further.
Regional government bond prices firmed in early trade after the ECB's chief economist said on Monday that the the bank may expand its bond-buying programme.
The bonds extended their gains slightly in late trade, with Hungary's 10-year benchmark bonds yielding 3.33 percent, down 7 basis points and the corresponding Polish yield dropping 7 basis points to 2.81 percent.
Hungary sold 55 billion forints worth of 3-month Treasury bills at an auction, 10 billion forints more than planned, at an average yield of 0.38 percent, unchanged from a sale last week and near record lows.
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