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Zloty jumps as rates stay on hold, Budapest stocks at 8-year high

Zloty jumps as rates stay on hold, Budapest stocks at 8-year high

BUDAPEST/WARSAW: Central European equities and some currencies firmed on Friday as the Polish central bank kept its 1.5 percent main interest rate on hold, choosing not to follow the monetary easing by the European Central Bank.

The Polish bank’s governor Marek Belka said stable interest rates were the most likely scenario even though the bank was cutting its consumer price forecasts, projecting negative inflation for the next quarters.

Investors shrugged off Belka not ruling out a rate cut, and also ignored a pan-European rights body, the Venice Commission, accusing Poland’s new conservative government of undermining democracy.

Such a warning could have hit Polish assets hard two months ago when a credit downgrade from Standard and Poor’s knocked the zloty down to four-year lows.

But the ECB’s rate cut and its expanded asset buying scheme, along with robust economic growth in the European Union’s eastern wing make the region’s assets more attractive.

The zloty firmed 0.7 percent to 4.305 against the euro by 1521 GMT, while Warsaw’s bluechip equities index and Budapest main stock index rose 1.2 percent, hitting a 3-month and an 8-year high, respectively.

“The MPC (Polish Monetary Policy Council) is sticking to the argument that growth remains robust; thus, the policy rate should remain stable,” Erste analyst Katarzyna Rzentarzewska said in a note.

The forint, firming 0.2 percent, regained only part of the ground shed on Thursday after the Hungarian central bank flagged further monetary easing and ECB chief Mario Draghi said further rate cuts were unlikely.

Government bonds were little changed in the region.

Hungary’s short-term interest rates could rise next week due to a 600 billion forint ($2.16 billion) drop in liquidity on March 16 when part of the swaps sold by the central bank to commercial banks in 2014 expire, one Budapest-based trader said.

But central bank interest rates in the region could remain low or may even drop as February data have confirmed that inflation remains low or even negative in the region.

Romania’s annual inflation dipped further into negative

territory, to -2.7 percent.

The leu eased 0.1 percent against the euro even though the Romanian central bank has been quite hawkish.

The dinar gained 0.1 percent as the Serbian central bank continued to buy it in the market to defend it.

Serbia has been the only central bank in the region to cut rates since the Federal Reserve lifted its own rates in December.

Serbia will hold snap elections on April 24.

While tension rises on the border of neighbouring Macedonia and Greece, with thousands of migrants stranded there, a new uncertainty appeared in Serbia as floods forced the government to declare a state of emergency.

Copyright Reuters, 2016

Courtesy : BRecorder



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