Forint keeps leading FX gains; zloty down after rate cut

•  "A wider interest rate corridor allows the central bank's flexibility in controlling the short end of the yield curve, which is key for the forint," said Bank of America analysts.
• The Polish zloty was down 0.3% at 4.545 versus the euro after the central bank delivered a surprise 50 basis point reduction on Wednesday.

BUCHAREST/BUDAPEST: The Hungarian forint hit a two-week high on Thursday, leading Central European currency gains, boosted by the central bank saying it could raise the 0.9% rate on its new one-week deposit tool if market conditions justified it.

By 0950 GMT, the forint firmed 0.9% to as high as 354.0 to the euro, followed by the Czech crown with a 0.4% gain to 26.880, past the psychological level of 27 per euro as markets got a boost from hopes the coronavirus outbreak was nearing its peak.

Hungarian central bank deputy governor Marton Nagy said on Wednesday the one-week deposit rate will be the strongest interest rate in the future, and widening the interest rate corridor had created the possibility to tighten policy if needed, and an ultra-accommodative policy stance "was over."

"A wider interest rate corridor allows the central bank's flexibility in controlling the short end of the yield curve, which is key for the forint," said Bank of America analysts.

The crown hit a three-week high amid stronger risk appetite.

A Prague-based dealer said the break past the 27 per euro level was a shakier move in today's market environment than it had been in the past, when it could propel gains.

"We can easily bounce back (to weaker levels)... There is still low liquidity," the dealer said.

Czech bond yields ticked higher at the long end of the curve. Lower house legislators gave a green light to the Czech central bank to buy a wider selection of market assets if needed in the future. The bill still needs Senate approval.

The bill has stoked some speculation on asset purchases. Central bank board member Tomas Holub told Reuters the bank was seeking the mandate primarily to have tools to provide liquidity and support financial stability.

Considering quantitative easing would also be on the table if conventional tools are exhausted, he said, and the bank was still quite far from using any non-conventional tools as it had 100 basis-points of room to cut interest rates.

Central banks in much of the region have been loosening policy to ease the impact from the virus outbreak.

The Polish zloty was down 0.3% at 4.545 versus the euro after the central bank delivered a surprise 50 basis point reduction on Wednesday.