WARSAW/BUCHAREST: Central European currencies fell on Monday as euro zone finance ministers wavered over further debt relief for Greece, with the forint unmoved after Hungary's central bank held interest rates.
"It's all about Greece and Moody's comments about Italy additionally fueled today's losses," said Karol Zaluski, chief FX dealer at ING Bank in Warsaw.
Euro zone finance ministers postponed a final decision on extending 12 billion euros ($17 billion) in emergency loans to Greece, saying Athens would first have to introduce harsh new austerity measures.
The mood in Central Europe, whose currencies' main reference point is the euro, was also dampened by credit agency Moody's comment late Friday that it might cut its rating on Italy, the third largest economy in the euro zone.
Romania's leu tested a 5-1/2 month low against the euro as a heavy Greek banking presence in the country is seen leaving it exposed to any Greek economic implosion.
"The Romanian leu is on the radar because Greek banks' subsidiaries have 17 percent of assets in the banking system, so the leu could underperform," said one Bucharest-based dealer.
Traders said they expected the Romanian central bank to intervene in the forex market to avoid sharp currency moves, as it has repeatedly said it does not favour excessive volatility.
Credit default swaps on Romania also rose, gaining 7 bps to 265 bps, the highest since March 21, Market data showed. Bulgaria widened 5 bps to 235 bps while Hungary rose 7 bps to 289 bps.
At 1215 GMT the forint traded at 268.9 against the euro, or 0.5 percent lower, while the zloty fell 0.3 percent to 3.987 after it briefly hit 4.00, a key psychological level.
Hungary's bonds weakened, with yields rising some 5 basis points, but there was little volume on the Budapest market.
"The forint and bonds have been fairly stable (except for the most recent shift) but looming external risks are even higher than before, while inflation is well above target and commodity prices remain volatile," said Gyorgy Barta of CIB Bank.
In Poland, bond yields rose 3-6 basis points across the curve with dealers citing weakening the zloty.
State-owned BGK bank will issue another round of bonds in the second half of July to fund road-building projects, its head told the central bank's website.
The papers are backed by the treasury and the money raised is handled by a special government agency. The borrowing is included in the general government deficit under ESA 95 rules.
BGK will issue 1 billion zlotys in road bonds maturing in 2045 on Wednesday, the bank said in a statement.
The bonds help to fund Poland's large road-building programme, which has been supported by European Union money and projects related to its co-hosting of the Euro 2012 soccer championships with Ukraine.
The Czech crown dipped 0.1 percent to the euro.
And in Romania, debt managers sold a planned 1.4 billion lei in one-year treasury bills, with the average accepted yield at 6.65 percent from 6.61 at a previous June 6 tender
Copyright Reuters, 2011
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