Hungary's forint on Monday edged back toward record lows hit in November as the central bank's loose policy stance spurred some investors to short the currency, while Polish bond yields extended their early-2020 climb to multi-month highs.
After initially recovering from the lows of late last year, the forint has slipped to once again lead losses among central European currencies, weakening more than analysts expected in a poll this month. The Hungarian central bank has kept the loosest policy stance in the region, piling extra pressure on the forint.
A dealer said thin markets on Monday, with a US holiday, were adding to the currency's woes and a new low was possible. "We are moving sideways with no real resistance at weaker levels as trade flows remain thin," the dealer said.
"With no news and no flows, investors look at the fundamentals: ultra-loose monetary policy with scant sign of tightening, external factors bleak. Why would they go long on the forint?"
By 1019 GMT, the forint was bid 0.3% lower at 337.00 to the euro, just shy of an all-time low of 337.21. It also set record lows against both the Polish zloty and the Czech crown, according to Refinitiv Eikon data.
The falling forint contrasts with the Czech crown, which rose 0.1% to 25.128 to the euro. It has led the region so far in 2020, climbing to a seven-year high last week before a slight correction. The crown is boosted by a central bank keeping open a debate on whether it should tighten policy. Expectations that a rate hike was still possible this year built last week after inflation data showed headline price growth was above the bank's tolerance range.
Czech National Bank Governor Jiri Rusnok told Lidove Noviny in an interview published on Saturday that rates were very likely to be stable this year, or they could rise slightly. On bond markets, Polish domestic inflationary pressures and increasing issuance pushed the country's bond yields higher. The benchmark 10-year bond yield was up a touch at 2.33%, just off a peak of 2.36% hit last week, which was the highest since July.
"In the coming days, it can be expected that pressure on government bond yields will continue to increase," PKO BP said. Elsewhere, Romania's central bank drained 6.6 billion lei ($1.5 billion) worth of one-week deposits from the market from 20 participants, at a 2.50% interest rate.
"Their move to drain excess liquidity is not surprising at all, it's part of their monetary policy stance. (The sum drained today) is rather large because year-end (budget) spending was especially large and that has triggered excess liquidity in the market," said Raiffeisen Bank Romania Chief Economist Ionut Dumitru.
The new centrist government of Prime Minister Ludovic Orban has pledged to reduce the budget deficit to 3.6% of gross domestic product (GDP) this year from an estimated 4.4% in 2019, with economists saying spending-boosting measures by a previous Socialist cabinet made the target challenging.
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