Forint gains with central bank seen leaving rates unchanged

BUDAPEST: The forint joined in the gains for most Central European assets, driven by a global rise in risk appetite, even though Hungary's central bank is expected to reaffirm its loose monetary policy at its meeting on Tuesday.

Reports of behind-the-scene talks between the United States and China to avert a trade war boosted risk appetite globally.

For now, investors are shrugging off a planned joint action by 14 European Union members, including Central Europe's biggest states, to expel Russian diplomats, in response to the poisoning of a former Russian double agent in England.

Warsaw led a rise of equities, with its blue-chip index gaining 1.4 percent by 0911 GMT, driven by financial services.

The zloty gained 0.2 percent against the euro, leading regional currencies, which have been under pressure in the past two months from global market jitters and a retreat in inflation in most of the region.

A Polish auction of government bonds is expected to draw robust demand on Tuesday, particularly because the Ministry of Finance lowered its limit for the sale to 3 billion zloty from 5 billion.

"Let us remind you that during the previous sale in February the reported demand amounted to over PLN 13 billion with PLN 4 billion in sales," Bank Millennium said in a note.

A Serbian five-year bond auction could also see good demand, partly due to expectation for further interest rate cuts by the central bank in Belgrade, a Raiffeisen note said.

Hungarian government bond yields dropped 1 to 3 basis points before the central bank's meeting. The bank is expected to keep its base and overnight deposit rates on hold and issue new inflation and economic forecasts.

Romania's central bank is expected to raise rates again next week after a surge in wages boosted inflation.

The yield on Romanian two-year government bonds was bid higher by 4 basis points at 2.63 percent on Tuesday.

Yields rose after the finance ministry reported late on Monday a deficit of 0.6 percent of economic output for February, even though the deterioration in the figures had been expected .

The impact was offset by offset by the government's meeting borrowing target for March despite fluctuation in demand at its auctions, Raiffeisen analysts Nicolae Covrig said.