CEE markets outlook

Uncertainty over the results of the Greek confidence vote prevented central European currencies from adding to gains from the previous session with concerns over a possible credit rating downgrade also holding back the forint. The surprise quarter-point interest rate cut from the European Central Bank on Thursday lifted the crown, the forint and the zloty by around 0.7 percent, but a risk of more negative developments in Greece kept a lid on investors' appetite for risky assets.
The zloty added 0.6 percent to trade at 4.34 to the euro, but was still off stronger levels touched late on Thursday. Greek Prime Minister George Papandreou faces a cliff-hanger confidence vote on Friday, expected as late as midnight, after the country dropped plans to hold a controversial referendum on an EU/IMF bailout. Central eastern Europe's close banking and trade ties to the euro zone make the its currencies vulnerable to turbulence within the single currency bloc. The zloty - the region's most liquid currency - has shed some 8 percent to the euro since the start of August, despite surprisingly sound output and retail sales data from the Polish economy.
The forint added 0.5 percent from Thursday's afternoon, but was also below stronger levels hit during the previous session. Dealers said the currency may find it hard to post further gains due to concerns that Hungary's credit rating might be downgraded to junk status. The forint has shed 11.6 percent to the euro since the start of August, posting the worst performance in the region in that period.
The Czech crown was down 0.1 percent to the euro after the Czech central bank kept interest rates on hold on Thursday, albeit signalling a possibility of a rate cut in the coming months. "The implied 3M PRIBOR trajectory was significantly revised downward (by the central bank), and it now shows an 80 percent probability of an interest rate cut of 25 basis points by Q1 2012," Societe Generale said in a note. The Romanian leu was largely stable to the euro, unmoved by data showing the average net wage rising 9.3 percent on the year in September.