BUCHAREST: Hungarian forint and Polish zloty fell against the euro on Wednesday driven by rate cut expectations, while the Czech crown shrugged off central bank comments pointing to intervention aimed at weakening the unit to support a fragile economy.
Prospects of Hungarian and Polish rate cuts outweighed expectations the Federal Reserve will announce a fresh round of bond buying with newly created money later on Wednesday, which were supporting riskier assets worldwide.
The forint and zloty are up 11 and 9 percent respectively year to date, having benefitted from a yield chase by investors outside western markets.
But traders said Tuesday data showing Hungarian inflation fell to 5.2 percent in November should bolster arguments for a fifth consecutive rate cut by the central bank.
"Next rate meeting takes place on Tuesday and given the lower inflation, the rather stable forint, despite recurrent cuts, as well as continued dovish comments from MPC members, we expect another cut by 25 basis points to 5.75 percent next week," SEB said in a note.
"We anticipate further cuts in the beginning of 2013 to front-load the easing cycle and expect the rate to bottom at 5.25 percent."
Poland too has cut its key rate twice this year to 4.25 percent, the lowest since May 2011.
On Wednesday central banker Andrzej Kazmierczak, seen as one of the staunchest hawks among policymakers, said it was too early to speak about further cuts. But Governor Marek Belka said on Tuesday the bank was "very likely" to cut rates further to boost the slowing economy.
Market interest rates fully price in further cuts totalling 125 basis points over the next twelve months in Warsaw.
By 1045 GMT, the forint and zloty were each down 0.2 percent to the euro.
CZECH INTERVENTION
Elsewhere in the region, Czech central bank Vice-Governor Vladimir Tomsik said interventions against the crown were the most efficient tool for further monetary easing, after the bank cut its main rate to a record low 0.05 percent last month.
Even the bank's most ardent hawk and monetary policy easing opponent weighed in on Wednesday saying she would support intervention on condition benefits to exporters would outweigh risks from higher prices.
Czech short-end yields dipped to fresh record lows, but the crown was up 0.1 percent.
"As long as there are voices from the central bank saying they will intervene if necessary, then we should not be surprised if it really happens," Komercni Banka analyst Jan Vejmelek said in a note.
"So far I have the feeling that market players are rather underestimating this risk."
Romania's leu was 0.2 percent stronger but still volatile as investors wait to see who President Traian Basescu will ask to form a government after Prime Minister Victor Ponta's coalition won two-thirds of seats in a parliamentary election.
Center>Copyright Reuters, 2012
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