Most currencies flat, zloty inches lower after central bank governor's comments

BUDAPEST/BUCHAREST: Most central European currencies were little changed on Monday, while the zloty edged lower after the Polish central bank's governor flagged the possibility of further rate cuts to help the pandemic-hit economy.

Polish central bank chief Adam Glapinski said on Friday that interest rates could drop below zero if the COVID-19 pandemic causes further, significant damage to the economy, adding that his base scenario was no change in borrowing costs.

The Polish bank left its base rate unchanged at 0.1% last Wednesday.

The zloty slid 0.08% to 4.5430 per euro, while other currencies in the region were practically unchanged. The Hungarian forint was just 0.06% weaker, trading at 360.650.

"Globally, there is sort of a sense of risk-aversion ... maybe there is a slight depreciation movement in the zloty but really this is not clear, we are stuck in a range," a Warsaw-based currency trader said.

Trade was also thin as markets in the US are closed for a holiday.

"The year is off to a slow start as investors are waiting, watching virus numbers and whether there will be stricter lockdowns, for example, in Germany," a trader in Budapest said.

Countries in the region were hit hard by the second wave of the pandemic and governments, while central banks are working hard to trigger a much-awaited rebound in their economies.

The Romanian leu was flat at 4.8740 against the euro, after the central bank unexpectedly cut its benchmark interest rate by a quarter-point to 1.25% on Friday.

Even before the pandemic, Romania was struggling with a widening budget deficit, eroded by years of political instability and fiscal largesse. A new centre-right government was sworn in December, easing some of the instability.

Erste Bank said in a note that a weaker-than-expected economic growth forecast and a benign inflation outlook were the likely reasons for the unexpected cut on Friday.

"The central bank still highlights the FX importance in its policymaking ... Hence, further policy easing remains a function of EUR/RON stability."

One-year money market rates fell to 1.79% from 1.98% in the previous session.

Most stock markets in the region eased. Warsaw's equities weakened 0.22%, while Budapest was down 0.64%.