CEE MARKETS 1-Polish zloty holds ground, but political turmoil weighs

Mon Jun 23, 2014 4:17am EDT

By Krisztina Than and Adrian Krajewski
    BUDAPEST, June 23 (Reuters) - The zloty regained some ground
on Monday from the losses caused last week by domestic political
turmoil, but investors remained cautious about Polish assets.
    Poland, which has the region's biggest economy, has been
rocked by a slew of leaked secret recordings of senior
officials. The controversy continued on Monday after new
transcripts emerged during the weekend. 
 
    Polish Prime Minister Donald Tusk said last week that
calling an early election was an option if no other way could be
found out of the crisis. Markets now await new comments from 
Tusk regarding the future of his cabinet.
    The zloty recovered slightly early on Monday, with some
investors finding the Polish currency a bargain after it lost
over 0.5 percent to the euro on Friday. It was 0.1 percent
higher at 0731 GMT. The Warsaw stock market also
gained 0.1 percent. 
    "London is buying up the zloty since the morning ... We're
also getting big orders from exporters for whom current levels
are attractive," one Warsaw-based dealer said. "The situation on
foreign markets is stable, which is taming moods in Poland a
bit, (but) political risk is still present."
    The zloty led losses among Central European currencies last
week, after a local magazine published secret recordings of
conversations between central bank chief Marek Belka and a
government minister.
     According to a transcript, Belka told a minister he would
be willing to help the government tackle its economic problems
if the finance minister were fired.
    Both men have said their words were taken out of context and
that they did not break the law. The recordings prompted calls
from the opposition for the government to step down. 
    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. 
    "Everything still centres on recordings of titillating
telephone conversations. The recent publications have moved
attention away from comments by central bank governor Marek
Belka," Commerzbank said in a morning note.
    "Now it is the government in Warsaw that is in the focus.
Will there be early elections? It is certainly a possible
scenario."
    Elsewhere, markets were off to a slow start, with the Polish
political turmoil and geopolitical risks weighing on sentiment. 
    "Tensions between Russia and Ukraine persist, the situation
in Iraq is escalating and there is this tape scandal in Poland.
One by one, none of these would be able to influence the forint
but added together they create negative sentiment," a dealer in
Budapest said.
    "Given that the forint is at relatively strong levels, we
can remain within the 305-310 range unless there is a stronger
shock."
    The main event in Hungary this week will be Tuesday's rate
meeting. The National Bank of Hungary is expected to cut
interest rates another 10 basis points to a new low of 2.3
percent, according to a Reuters poll. 
    "We expect three more cuts to 2 percent this year and rates
to remain on hold until the fourth quarter of 2015," Unicredit
said.
    At 0731, GMT the forint was 0.1 percent higher at 305.65 to
the euro. The Czech crown was steady.
                  CEE MARKETS SNAPSHOT AT 0931 CET
 ************************** CURRENCIES ************************
                             Latest  Previous   Daily   Change
                             bid     close      change  in 2014
 Czech crown                 27.429    27.433  +0.01%  -0.35%
 Hungarian forint           305.650   306.090  +0.14%  -2.84%
 Polish zloty                 4.160     4.164  +0.07%  -0.26%
 Romanian leu                 4.394     4.395  +0.02%  +1.50%
 Croatian kuna                7.573     7.574  +0.02% +0.59%
 Serbian dinar              115.360   115.350  -0.01%   -0.75%
 Note: daily change calculated from previous close at 1700 GMT
 **************************** STOCKS **************************
                             Latest  Previous   Daily   Change
                                     close      change  in 2014
 Prague                      1030.53    1032.53   -0.19% +4.42%
 Budapest                  18927.36  18953.38    -0.14%  +3.24%
 Warsaw                     2464.39   2462.13   +0.09% +2.50%
 Bucharest                  6752.72   6747.78  +0.07%  +4.24%
 ***************************** BONDS **************************
                         Yield    Yield    Spread    Daily
                         (bid)    change   vs Bund   change in
 Czech Republic                                      spread
   2-year                0.356    0.000   +32bps     0bps
   5-year                0.598     -0.017   +21bps  -1bps
  10-year                1.529   +0.012   +20bps    +3bps
 ******************* FORWARD RATE AGREEMENTS ******************
                              3x6     6x9    9x12  3M interbank
 Czech Rep                    0.350   0.350  0.350   0.35
 Hungary                      2.370   2.410  2.490   2.43
 Poland                       2.560   2.455  2.460   2.68
 Note: FRA quotes are for ask prices
 **************************************************************
 
 (Additional reporting by Gergely Szakacs; Writing by Krisztina
Than; Editing by Larry King)
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