CEE MARKETS 3-Polish zloty at 3-week low as leaked tape row continues

Fri Jun 20, 2014 10:10am EDT

* Zloty weaker as leaked tapes continue to hurt govt, cbank
    * Rate-setter says Belka should consider his position
    * Forint also getting hit as Ukraine concerns hit
    * Slovenia shares down on Telekom privatisation questions

    By Jason Hovet
    PRAGUE, June 20 (Reuters) - The zloty fell to a three-week
low on Friday as the Polish central bank chief and prime
minister remained under fire over a leaked tape recording that
is threatening their positions.
    The zloty led losses among Central European currencies.
    Polish politics have compounded the unease among emerging
Europe investors, along with the crisis in Ukraine, and the
zloty has lost over 1 percent since the release of secret tapes
between top officials last weekend.
    A Polish magazine said on Saturday it had a recording of a
conversation in a restaurant last year in which, it said,
central bank Governor Marek Belka told a minister he would be
willing to help the government tackle its economic problems if
the finance minister were fired.
    Belka, who has been generally viewed as a safe pair of hands
in charge of monetary policy, has said the tapes were
manipulated and he was not politically engaged. But pressure has
stayed on him and engulfed Prime Minister Donald Tusk's
government.
    Central bank rate setter Andrzej Rzonca was quoted as saying
that Belka would have to consider whether his denials were
enough to remain in his post to avoid exposing the central bank
to further erosion of credibility.   
    The reputation of Poland's central bank had suffered "as
never before" because of the leaked comments by Belka, which
created a "feeling of political involvement" on his part, Rzonca
was quoted as saying. 
    "The tape scandal continues, just when it had appeared that
Belka had ridden through this," Tim Ash, emerging markets
strategist at Standard Bank, said in a client note.
    "These are pretty striking comments from a fellow MPC
member, and signify notable unease of at least one member of the
committee over the scandal."
    At 1327 GMT, the zloty, which has given back all
its 2014 gains this month, was bid 0.6 percent lower at 4.167 to
the euro. The yield on 10-year bonds was up 7 basis points.
    Poland's opposition, sections of the media, and rights
campaigners accused senior officials on Thursday of using law
enforcement agencies to try to stop the magazine publishing the
secret tapes. 
    Tusk said one option was to call a snap election - though it
was not clear if he could obtain the required approval of
parliament.
    "This is political risk visible today," said a Warsaw-based
currency trader at a major bank. "The news flow from Poland is
reaching other countries and there is a slight panic."
    
    FORINT WEAKER 
    Hungary's forint also weakened, suffering from the zloty's
fall and concerns over neighbouring Ukraine.
    "The forint has weakened on the latest news on Ukraine about
possible debt restructuring, and the zloty is suffering because
of the domestic political developments, so the sentiment in the
region is not too positive," a dealer in Budapest said.
    Lubomir Mitov, an economist at the Institute of
International Finance who recently visited Ukraine, said on
Thursday that Kiev was holding "preliminary" talks with
creditors on a possible restructuring of its foreign currency
debts. 
    An IMF official, however, reaffirmed the Fund's view that
Ukraine was unlikely to require a debt restructuring.
 
    The forint lost 0.1 percent to 305.62 to the euro
although the dealer expected range trading into the weekend. The
Romanian leu retreated 0.1 percent and the Czech crown
 was steady in the middle of its recent range.
    Romanian bond prices were firmer following a well-bid debt
auction on Thursday.
    Stock markets were mixed, with Slovenia's blue-chip SBI
index down 1.7 percent. Shares of the country's
largest telecoms operator Telekom Slovenia fell 3.5
percent after Miro Cerar, who leads polls ahead of a July
election, said late on Thursday he was against its
privatisation. 
                  CEE MARKETS SNAPSHOT AT 1327 CET
 ************************** CURRENCIES ************************
                             Latest  Previous   Daily   Change
                             bid     close      change  in 2014
 Czech crown                 27.431    27.435  +0.01%  -0.36%
 Hungarian forint           305.910   305.370   -0.01%  -2.83%
 Polish zloty                 4.167     4.140    -0.57%  -0.42%
 Romanian leu                 4.394     4.389   -0.11%  +1.50%
 Croatian kuna                7.569     7.576   +0.08% +0.64%
 Serbian dinar              115.430   115.320    -0.10%   -0.81%
 Note: daily change calculated from previous close at 1600 GMT
 **************************** STOCKS **************************
                             Latest  Previous    Daily   Change
                                     close      change  in 2014
 Prague                     1033.92   1030.01    +0.38%  +4.76%
 Budapest                  19030.36  19086.91    -0.30%  +3.80%
 Warsaw                     2462.01   2462.36    -0.01%  +2.40%
 Bucharest                  6758.01   6754.27    +0.06%  +4.32%
 ***************************** BONDS **************************
                         Yield    Yield    Spread    Daily
                         (bid)    change   vs Bund   change in
 Czech Republic                                      spread
 2-year                0.361   +0.038   +32bps    +3bps
 5-year                0.600    +0.020   +20bps      0bps
 10-year                1.520   +0.016   +17bps     -1bps
 Poland
   2-year                2.590   +0.010    +255bps    0bps
   5-year                3.190   +0.050    +280bps   +4bps
  10-year                3.620  +0.070    +228bps   +6bps
 ******************* FORWARD RATE AGREEMENTS ******************
                              3x6     6x9    9x12  3M interbank
 Czech Rep                    0.350   0.340  0.330   0.35
 Hungary                      2.350   2.390  2.440   2.43
 Poland                       2.545   2.465  2.470   2.68
 Note: FRA quotes are for ask prices
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 (Reporting by Reuters bureaus; Writing by Jason Hovet and
Marcin Goettig; Editing by Mark Heinrich and Susan Fenton)