BUDAPEST/WARSAW: Central European currencies and equities fell on Tuesday as a global rise in risk aversion amid a renewed crude price fall and a Moody's warning over Warsaw's budget overshadowed strong Polish output figures.
The decline ended a rebound in the European Union's emerging markets, which started after the European Central Bank hinted on Thursday at more monetary easing to come in the euro zone.
The zloty shed 0.7 percent against the euro by 0925 GMT to 4.498.
Last week, before the regional rebound, the zloty had hit 4-year lows at 4.5108 against the euro and Warsaw stocks hit 7-year lows due to concern Poland's new government is centralising power and its policies will increase burdens for banks.
These concerns deepened after Moody's said on Tuesday that Poland's larger-than-expected deficits and changes to its spending rules were credit-negative.
S&P downgraded Poland earlier this month.
"They (Moody's) point out there is a high risk regarding the 2017 budget and the market is pricing this in (...) the whole move in the morning was caused by foreign banks selling the zloty," a Warsaw-based dealer said.
Warsaw's blue-chip stock index fell 0.6 percent on Tuesday. Bucharest led the regional fall of equities, with its main index shedding 1.7 percent.
The forint eased 0.2 percent versus the euro.
The Hungarian central bank is expected to keep its base rate on hold again at a record low 1.35 percent at its meeting on Tuesday.
The bank announced further unconventional measures earlier this month to encourage local commercial banks to buy government debt and push the costs of long-term lending lower.
A continuing fall in crude prices and the prospect of ECB policy easing increase the chances that inflation will remain weak in Central Europe and that central banks in the region will loosen their own policies further.
Economic growth remains robust in the region despite the global worries, giving support to regional assets.
Poland said on Tuesday that its economic output grew by 3.6 percent last year, slightly more than analysts' forecast of 3.5 percent, while the country's unemployment rate was 9.8 percent in November, compared with analysts' 9.7 percent forecast.
The data could remind investors that Polish output growth remains solid, but the international market mood is fragile, mBank analysts said in a note before the figures were released.
Polish forward rate agreements price in 80 percent chance for a 25 basis point cut in the central bank's 1.5 percent main interest rate in 6-9 months and 50 percent chance for such a move in 3-6 months..
The EU said in its fiscal sustainability report late on Monday that 11 of its members, including Romania, Slovenia and Croatia, face high risks.
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