BUDAPEST: The dinar eased slightly on Thursday as Serbia's central bank surprised again by cutting its benchmark rate further, while a jump in Romania's inflation to a five-year high strengthened the leu, adding fuel to monetary tightening expectations.
Monetary policy expectations had limited impact on regional currencies in recent weeks, mostly overshadowed by global risk sentiment, even though inflation readings remained mild across Central Europe apart from Romania.
Government bond prices, however, mostly firmed, again with the exception of Romania, where the European Union's fastest wage increases are boosting inflation and the current account deficit.
Serbia said on Thursday that annual inflation declined to 1.4 percent in March, against 3.6 percent a year earlier, and the central bank lowered its benchmark rate by 25 basis points.
At 3 percent, it is still the highest in the region, even though this was the second consecutive interest rate meeting at which the bank surprised with a cut.
The dinar eased only a shade, to 118.28 against the euro by 1309 GMT, remaining near its strongest level in almost four years despite central bank efforts to weaken it by selling in the market and cutting interest rates.
Further rate easing cannot be ruled out, especially if the dinar remains strong, Erste Bank analyst Milan Deskar-Skrbic said in a note.
Inflation, which is now below the central bank's 1.5-4.5 percent target range, could stay low.
The bank has limited power to influence it because the dinar has been buoyed mainly by increased demand for lending, FDI inflows and robust exports, rather than portfolio flows, Deskar-Skrbic said.
Neighbouring Romania has the opposite inflation problem.
Its annual inflation jumped to 5 percent, with natural gas and tobacco prices expected to lift it further before a decline towards the central bank's 1.5-3.5 percent target range, Erste analyst Eugen Sinca said in a separate note.
"We maintain our call for another policy rate hike ... at the May policy meeting," he added.
The leu firmed by less than 0.1 percent to 4.6609 against the euro, with the bank having already flagged the inflation rise.
But Romanian government bonds continued to ease and the government sold a little more than half of the 2024-expiry bonds offered at an auction.
Hungary sold bonds worth 120 billion forints ($474.4 million) amid robust demand in one of its biggest single sales at a domestic auction.
Sentiment was helped by investors' expectations for predictability in economic and monetary policy after Sunday's elections, in which Prime Minister Viktor Orban's right-wing government won a third successive term.
Comments
Comments are closed.