June 10, 2014 / 11:51 AM / 6 years ago

CEE MARKETS 2-Zloty around 14-month high, Slovenian yields at 8-year lows

* ECB moves make Central European assets more attractive

* Polish zloty also boosted by talk of joining euro zone

* Hungary set to announce May inflation data on Wednesday

By Ivana Sekularac

BELGRADE, June 10 (Reuters) - The Polish zloty held at around 14-month highs against the euro on Tuesday amid expectations that recent monetary easing by the European Central Bank will boost investors’ appetite for Europe’s emerging market currencies.

With Polish interest rates likely to stay on hold for the time being, investors sought to profit on diverging interest rate paths in Poland and the euro zone, pushing the zloty up.

Lower ECB interest rates make Central European assets relatively more attractive.

The zloty achieved further momentum last week after leading policymakers said Poland should discuss entry to the euro zone after a 2015 election.

“The euro/PLN is oscillating around one-year highs of 4.09-4.10. There are no new impulses now that could fuel any bigger changes here,” Bank PKO wrote in a morning note to clients.

However, a non-voting board member of the National Bank of Poland, Andrzej Raczko, played down talk of large capital inflows into Poland after the ECB actions.

“One should also not expect a rapid inflow of capital to Poland ... because a significant part of liquidity ... will be used to increase credit action in the euro zone,” he told the Polish daily Rzeczpospolita on Tuesday.

A strong zloty is unwelcome to the Polish central bank as it may push down the inflation rate, now at 0.3 percent compared with the bank’s 2.5 percent target. A stronger zloty could also hurt exports and thus slow the pace of economic growth.

At 1101 GMT, the zloty flat compared to Monday and traded at 4.1005 to the euro.

Other currencies were stable, with Hungary’s forint up 0.21 percent against the euro.

“The main risks of the trade are if volatility drops due to strengthening positive emerging market sentiment from the ECB-fuelled rally or if the forint spot moves lower from positive domestic developments or from emerging market strengthening,” Societe General said in a note.


Slovenia’s 10-year benchmark yield reached a new low since the tiny ex-Yugoslav republic joined the euro zone in 2007. The yield fell to 3.006 pct from 3.081 pct on Monday, driven down by the ECB policy easing. Slovenia is due to sell some 60-million euros of treasury bills later on Tuesday.

“Sluggish activity, low inflation and fresh easing in some core economies are suppressing bond yields around the world and keeping risk assets bid,” said Vlad Muscalu, chief economist at ING Bank Romania.

In Hungary, bond yields were mostly unchanged from Friday.

“The market is taking a breather (after last week’s rally),” a fixed income trader said.

He said the market was now waiting for inflation data on Wednesday, and a Hungarian court decision expected on June 16 on foreign currency loans which could give clues about what further action the government could plan to help borrowers.

The Hungarian central bank is expected to continue cutting interest rates later this month, as it left the door open to rate cuts after its last meeting in May when it reduced the base rate to a new record of 2.4 percent.

At an auction of 3 month treasury bills earlier in the day, the government debt agency sold 70 billion forints worth of papers, more than planned. The average yield edged down to 2.34 percent from 2.37 percent at the last auction a week ago.

Oil company MOL shares were up 0.8 percent at 1010 GMT, outperforming the wider market which is 0.2 percent higher. Balint Torok, an analyst at brokerage Buda-Cash said this could be due to the announcement earlier in the day about an oil find in Pakistan [ID: nL5N0OR0XF] (Reporting by Reuters bureaus; Writing by Ivana Sekularac; Editing by Tom Heneghan)

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