Currencies steady after ECB leaves rates flat

WARSAW: Emerging European currencies were little changed on Thursday after the ECB left interest rates on hold and as market participants digested the Polish central bank's decision to keep borrowing costs steady.

The European Central Bank left rates in the common currency zone on hold at 1.0 percent as expected, despite some concerns over inflation.

Emerging European assets are influenced by events in the euro zone, which is the region's main trading partner, and currencies can track moves in the euro.

A Reuters poll does not see a euro zone interest rate rise until the fourth quarter of 2011 although financial markets have started to bet on a rise in the third quarter.

The Polish central bank's 10-strong Monetary Policy Council left its main rate unchanged at 3.75 percent on Wednesday, citing weak wage pressure and investments and high unemployment, but signalled further monetary tightening ahead to cool accelerating inflation.

"After yesterday's decision the zloty weakened, but further information from the press conference caused the unit's rebound as the market read it as a signal for further hikes," a Warsaw-based dealer said.

The zloty was hovering around its 200-day moving average of 3.983 per euro by 1251 GMT while Polish bonds were almost unchanged from Wednesday's levels when the rate decision supported the shorter end of the curve.  "Today we await ECB remarks, particularly whether it is going to sharpen its rhetoric. The prospects for potential rate increases in the euro zone may translate into higher yields on five-year bonds," a Warsaw-based fixed income dealer said.

The Romanian leu remained near nine-month highs after final GDP figures for the fourth quarter showed the country's economy contracted by a less-than-expected 0.6 percent on an annual basis.

"Overall, the figures are more positive than initial expectations which ... bodes well for the economy this year," a Bucharest-based dealer said.

Analysts polled by Reuters before a flash release last month had forecast of a 1.5 percent contraction in GDP.

The Czech crown edged up 0.2 percent and Hungary's forint was 0.1 percent stronger against the common currency.

Dealers said the impact of Hungary's fiscal adjustment package to cut its deficit, unveiled on Tuesday, had faded for now.

The unveiling of the package had sent the forint lower as investors were disappointed about a lack of details.

Dealers said the forint could gain further if global investor sentiment continued to improve. Sentiment picked up slightly on Thursday as oil prices fell after the Arab League said a peace plan for Libya was being mooted.

"We're quiet, and the overall market optimism is probably going to drive the forint stronger in the near term," a dealer said in Budapest.