EMERGING MARKETS-Stocks dip; zloty down on rate cut expectation

LONDON Mon Feb 18, 2013 6:50am EST

LONDON Feb 18 (Reuters) - The Polish zloty hit two-week lows on Monday as investors bet that falling inflation would pave the way for more rate cuts in coming months while a drop in Chinese stocks pressured broader emerging equities.

Benchmark emerging equities fell 0.3 percent, with moves restrained by the U.S. Presidents' Day holiday. Shanghai stocks lost almost half a percent.

Poland's zloty fell to 0.24 percent, extending losses and underperforming all other currencies in the region after investors grew convinced a sharp fall in inflation would lead to further monetary easing ahead.

Data on Friday showed Poland's inflation at 1.7 percent in January, a six-year low, prompting a central banker to say interest rates should be cut in March.

The zloty slumped almost 1 percent last week and has lost almost 3 percent against the euro this year.

"The deeper-than-expected inflation drop in January adds to pressure on the conservative majority at the Polish rate-setting panel to continue policy easing, despite a nearing pause in rate cuts suggested by them earlier this year," Nordea told clients.

The Hungarian forint however rose 0.4 percent on conflicting reports as to whether Economy Minister Gy├Ârgy Matolcsy would take over as the next central bank governor.

Matolcsy is widely expected to engineer a weaker forint via deep rate cuts but the prime minister last week hinted he may not get the job.

"I think it's partly in the price that Matolcsy will be the next governor... If he doesn't become governor the forint will go a bit lower... so some people may think that from a risk reward perspective it's better to be long forint at this point," said Murat Toprak, emerging markets strategist at HSBC.

The Turkish lira and bond yields traded flat as investors awaited a central bank rate decision on Tuesday.

Caution grew over possible intervention by South Korean authorities as the won hit a 4-1/2-year high against the yen.

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