BUDAPEST/WARSAW: The forint eased as a senior central banker suggested that Hungary could follow monetary easing which the European Central Bank is expected to announce later on Thursday.
The Hungarian currency eased half a percent against the euro by 0842 GMT, trading at 310.50, while most other Central European currencies were steady, with investors holding their breath ahead of the ECB meeting.
High-yielding assets in the European Union's eastern peripheries have at least partially priced in a positive impact from an expected fall in euro zone interest rates further into the negative and more asset buying by the ECB.
Some of the region's central banks are expected enter a monetary loosening race with the ECB as they do not want to allow their currencies to strengthen and erode competitiveness in the region's main export market, the euro zone.
Hungary's deputy central bank governor said monetary conditions were not loose enough as significant downwards risks had emerged to inflation goals.
Marton Nagy said the bank should be "very careful" when considering cutting rates into the negative.
Hungarian government bond yields dropped 6-7 basis points from Wednesday's fixing, with 10-year bonds trading at 3.22 percent, while Polish yields changed little.
"Nagy's comments underpin that the bank will continue to use non-conventional tools and cutting rates will be the last resort," one Budapest-based fixed income trader said.
The trader said Hungarian FRAs (forward rate agreements) priced in about 35 basis point cuts in the central bank's 1.35 percent base rate for the next few months, adding that bond yields could drop slightly further if the ECB meeting delivers on the expectations.
The zloty, which traded flat at 4.317 against the euro could jump beyond 4.3 if the ECB proves even more dovish than expected, and the yields on long-term Polish bonds could drop about 5 basis points, Bank Pekao said in a note.
Most analysts think that the Polish central bank, which will meet on Friday, will not resume rate cuts.
A Czech central bank economist said on Wednesday that negative interest rates were not a preferred tool but they must be considered given their use elsewhere in Europe.
The Czech crown traded at 27.045 against the euro, at the central bank's cap on the firmer side of 27.
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