FX drift, hold off lows as Ukraine stays in focus

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PRAGUE, March 11 (Reuters) - Central European currencies mostly drifted lower on Friday but held well off lows hit at the beginning of the week, while stocks gained some ground even as investors remained focused on the war in Ukraine and risks to regional growth.

European Union leaders were holding a summit at France's Versailles Palace, with talks expected to be dominated by calls for more action to punish Russia for its invasion, assist Ukraine and cope with an influx of nearly 2.5 million refugees in just two weeks. read more

Central Europe has been hit hard by a global flight to safer assets following Russia's invasion of Ukraine on Feb. 24, which prompted a raft of harsh Western sanctions against Moscow.

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The Hungarian forint and Polish zloty fell to record lows on Monday amid a global sell-off.

The slide in currencies has already prompted the Czech and Polish central banks to step into markets last week while Hungary's policymakers have lifted interest rates.

The Hungarian central bank (NBH) raised its one-week deposit rate by 50 basis points to 5.85% at a weekly tender on Thursday, extending its rate tightening campaign.

"With geopolitical risks still dominating FX and commodity prices moves, we think that the NBH will currently continue to use the 1-week depo to respond quickly to a deterioration of risks by raising rates while keeping them on hold when these subside," Morgan Stanley analysts said.

The forint was steady on Friday at 380.11 per euro to the euro at 0936 GMT, off a record low of 400 it hit on Monday.

The zloty dipped 0.2% to 4.793 per euro, while the Czech crown was also little changed at 25.216.

The Czech central bank, which has lifted its base rate to a 20-year high of 4.50%, has been the most aggressive among central Europe's policy tightening seen since last year as inflation soars. The region is expecting still stronger price pressures coming from the Ukraine conflict.

Czech inflation could accelerate by 1-2 percentage points from the 11.1% reported for February, central bank Governor Jiri Rusnok said late on Thursday. He said a further moderate rise in rates could not be ruled out.

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Reporting by Jason Hovet in Prague and Anita Komuves in Budapest; Editing by Kim Coghill

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