Polish bonds extended gains last week in the wake of positive comments about next year's budget, but some dealers warned profit taking may be just around the corner after this week's uptick.
Finance Ministry adviser Stanisław Gomulka said that next year's key broad budget deficit figure - the so-called economic deficit - would shrink to 3.6% of gross domestic product from 4.9% in 2002, boding well for a reduction in new treasury issues in 2003.
"The statement by Gomulka was the most bond-market friendly comment we have heard from a finance ministry official for some time," HSBC said.
Yields on two-year and five-year bonds eased two basis points to 9.47% and 9.32% respectively. The longest 10-year bonds, which have limited liquidity, have shed 12 basis points to 8.33% since last week's high. "Positive sentiment remained intact with London (based foreign investors) interested in shorter paper and two-year swaps," said Maciej Słomka, dealer at Bank Pekao in Warsaw.
"Some clients are betting on a rate cut in April while other purchases are speculative, which means that profit taking may be set off if more gains appear," he added.
Finance Minister Marek Belka also renewed pressure on the central bank to lower borrowing costs - now at 10% against 3.5% annual inflation - but warned that the year-long rate cut cycle was nearing its end.
"We are hoping for a rate cut, carried out in a way which would exclude expectations for further cuts. This would cause a several percent weakening of the złoty and give exporters more room to breathe," the Polish Press Agency (PAP) quoted Belka as saying.
The złoty remained unaffected by another attempt to talk down the currency by Belka, inching down 0.25% against the euro and up the same amount vs. the dollar.
- Reuters
