BUDAPEST/WARSAW: Central European currencies and government bonds fell on Monday amid expectations the Federal Reserve will raise US interest rates at its meeting on Wednesday and may hint at more to come.
Stocks also fell, since rising US rates would make assets in the region's emerging markets relatively less attractive.
Poland's weaker-than-expected data on manufacturing growth in February and a decline in producer prices underpinned that Poland's own interest rates are likely to remain at record lows this year.
The figures had only a passing impact on the zloty. The Polish central bank had already lowered its inflation forecasts two weeks ago, and its Governor Adam Glapinski said there was no reason for rates to rise until the end of 2020.
The zloty traded at 4.2166 against the euro at 1343 GMT, weaker by less than 0.1 percent, off a 3-month high set in morning trade.
However, a member of the Polish central bank's Monetary Policy Council, Jerzy Osiatynski, warned later that inflation may turn out higher than the bank's new forecasts.
Andrzej Kaminski, economist at Millennium Bank, took the same view. "Due to rising labor costs, the MPC will raise the cost of money in the second half of 2019, as wages and inflation will be growing faster than assumed in the (central bank's) projection," he said.
The forint, the Czech crown and the Romanian leu also weakened. The crown and the leu traded near two-month lows even though the Czech and Romanian central banks have already started to raise rates.
The latter is expected to raise rates again on April 6, but government bond auctions have mostly drawn healthy demand in the past weeks after an earlier surge in yields.
On Monday it sold more six-year bonds than planned, at lower yield than at the previous auction on Feb. 12.
Elsewhere in the region, government bond yields mostly rose by a few basis points, tracking US and euro zone peers.
"Markets are a bit clueless," one Budapest-based trader said. "Much will depend on the (pace of) Fed rate hikes, and the ECB's later decisions."
"In Hungary, bonds could remain relatively well supported by the central bank's measures (to stimulate demand)," the trader added.
Stocks mostly fell in the region, tracking a global decline ahead of the expected Fed rate hike.
Budapest led the retreat, shedding 2.5 percent.
The stocks of the region's biggest independent bank, OTP fell more than 3 percent from a one-month high set in the previous session, after Romania's central bank torpedoed OTP's takeover of Banca Romaneasca.
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