By Ewa Krukowska
Nov. 8 (Bloomberg) -- The Czech koruna had a record weekly drop against the euro after the central bank cut interest rates by more than forecast and signaled they may go lower. The Hungarian forint slumped after a rating downgrade.
The koruna was the second-biggest loser among emerging- market currencies this past week as the Prague-based Ceska Narodni Banka lowered its main rate 75 basis points to 2.75 percent to spur growth. Central bank Governor Zdenek Tuma said Nov. 6 he did not rule out further rate reductions.
``We expect the Ceska Narodni Banka to cut by another 50 basis points in three months,'' Anna Zadornova, an economist in London at Goldman Sachs Group Inc., wrote in a note yesterday. ``Then by another 25 basis points in six months from now, taking rates to 2 percent, with risks skewed to the downside.''
The koruna fell as much as 1.4 percent to 25.254 per euro, the weakest level since Oct. 27, and was at 25.130 by late yesterday in Prague. It dropped 4.6 percent in the week, the steepest decline since the debut of the euro in 1999.
Czech international reserves shrank to $34 billion in October, from $36.3 billion in September, a central bank report showed yesterday. In euro terms, the reserves rose to 26.650 billion euros, from 25.383 billion a month ago.
The 75 basis-point reduction in the two-week repurchase rate defied the predictions of 16 of 18 economists in a Bloomberg survey who forecast a quarter-point reduction. The central bank will cut the rate by 25 basis points to 50 basis points at its Dec. 17 meeting and will ultimately reduce it to 2 percent, Gillian Edgeworth, an economist in London at Deutsche Bank, wrote in a note.
Falling Rates
The Bank of England lowered its key rate by 1.5 percentage point on Nov. 6 and the European Central Bank and Swiss National Bank lowered theirs by 50 basis points to limit the economic damage from the global financial crisis. The euro area is the largest trading partner for central European countries.
In other trading, the forint tumbled as much as 3.1 percent to a two-week low of 270.48 against the euro after Moody's Investors Service lowered Hungary's sovereign ratings by one step to A3 and assigned a negative outlook.
``This underscores the problems of the Hungarian economy and the fact it is going to face a recession very soon,'' Bartosz Pawlowski, strategist at TD Securities in London, wrote in a client note yesterday.
The forint last traded at 265.15 against the euro, from 262.37 on Nov. 6, extending its weekly decline to 3.7 percent, the most since period ending Oct. 17.
The International Monetary Fund approved a $15.7 billion loan to the country to shore up the economy. It said it would make $6.3 billion of the 17-month loan available immediately and the rest after quarterly reviews.
Zloty, Leu
The zloty lost 2.5 percent in the week to 3.6215 per euro and the Romanian leu dropped 1.5 percent to 3.7275 against the common currency. The Slovak koruna rose 0.1 percent to 30.418 per euro.
The Turkish lira advanced 1.8 percent to 1.5398 per dollar today and was 0.1 percent stronger in the week.
``Rate-easing in Romania, Turkey and South Africa is still a long way off in our view, unless the emerging-markets capital flow backdrop radically improves, which we don't expect,'' Martin Blum, head of emerging-markets economics and currency strategy in Vienna at UniCredit SpA, wrote in a client note.
To contact the reporter on this story: Ewa Krukowska in Warsaw at ekrukowska@bloomberg.net
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