(Recasts with Czech rate decision)
May 6 (Reuters) - The Czech crown erased early
losses and hit a 2-1/2 month high on Thursday after the Czech
central bank"s governor said a rate hike was certain this year,
while market rates added to bets that tightening was getting
nearer.
Czech Central Bank Governor Jiri Rusnok said on Thursday
that the bank will certainly raise interest rates in 2021 and
the board will debate tightening already in June.
The crown was 0.19% firmer against the euro at 25.738 at
1537 GMT, after having traded as much as 0.29% weaker earlier in
the day.
Shorter-term forward rate agreements and interest rate swaps
rose 5-10 basis points. "I think the market was strongly
surprised" by the hawkish comments, a trader said. "We might
start pricing in some odds for a June (hike) already."
The seven-member board voted unanimously to keep the main
two-week repo rate at 0.25%, where it has been for
the past year.
On Wednesday the Polish central bank kept its main interest
rate at an all-time low of 0.1% despite saying that it sees
above-target inflation in the coming months.
The Polish zloty continued to slip, weakening 0.1%
to 4.575. Central Europe"s most liquid currency has been
affected by worries concerning upcoming sittings of the Supreme
Court concerning Swiss franc mortgages, a major risk factor for
Polish banks.
"Before we hear the Supreme Court ruling on the Swiss
mortgage saga we expect the volatility to remain elevated," said
Piotr Poplawski, senior economist at ING.
Thousands of Polish borrowers took out franc loans more than
a decade ago to take advantage of low Swiss interest rates but
then faced ballooning repayments when the zloty weakened sharply
against the Swiss currency.
The Court will issue guidance on questions including the
claims that banks can make from clients after mortgage contracts
were cancelled.
The Hungarian forint was 0.20% stronger at 358.18,
after gains in the previous session.
"...The rate fell under the 200-day moving average of 359.4,
but we cannot yet unambiguously say that the long-term moving
average was broken," Erste Bank wrote in a morning note.
The bank said that the firming was due to the recent steps
to gradually reopen the economy. "It"s been typical for the
forint so far to react to news about the pandemic in both
directions."
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