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UPDATE 1-CEE cbanks agree to monitor economies, fin. systems

Published 03/20/2009, 10:19 AM
Updated 03/20/2009, 10:24 AM

* CEE cbank heads meet in Budapest

* Statement does not contain further coordinated measures

(Adds analyst, background)

BUDAPEST, March 20 (Reuters) - Central eastern European central banks agreed on Friday to cooperate in monitoring their economies and financial systems to help fight the effects of the global financial crisis, the National Bank of Hungary (NBH) said.

The statement, issued after a meeting in Budapest, did not point to any further measures by the region's central banks after a coordinated verbal intervention to prop up their falling currencies late last month.

The verbal intervention helped stop the currencies' decline and they have rebounded as global sentiment improved but analysts say real policy action and a European Union or International Monetary Fund plan would be needed to underpin the region.

EU leaders agreed on Friday to double crisis funds available to members of the bloc that are not in the euro zone to 50 billion euros ($68.5 billion) but more will likely be needed.

"The governors of regional central banks discussed matters of mutual interest and, among others agreed to continue the in-depth monitoring of their financial systems and agreed to extend the cooperation to further strengthen the macroprudential oversight throughout the region," the NBH said in a statement.

The participants of the meeting were the heads of the Austrian, Czech, Hungarian, Polish, Slovak and Slovenian central banks.

"One of the most effective tools would be a package of funds, from either the IMF, the EU or other organizations, in a significant amount. That would make it credible that states getting in trouble have access to funds," said Barbara Nestor, an analyst at Commerzbank.

"Coordinated policy from central banks would be probably ineffective. Apparently markets react to news about funding packages more sensitively," she added.

"There are all kinds of estimates about the gap, what the region would need. This cannot be tackled with interventions or interest rate hikes."

Interest rate hikes could further erode already flagging economic growth and analysts said they would probably fail to attract capital in the current adverse global environment.

The Czechs and Poles are seen weathering the economic crisis better than Hungary and its neighbour Romania, which recently turned to the IMF for help, but as long as financial markets tend to lump these countries all together, currencies will likely remain under pressure, analysts have said.

Goldman Sachs said in a note that the EU doubling its crisis funds was encouraging and positive for currencies in the region but probably not sufficient to resolve problems.

"The money that the EU is pledging still falls short of the funding shortfall in the region," it said.

"After the recent rebound in CE-3 currencies, our forecasts suggest some modest scope for FX weakening in 3-6 months. But the larger the multilateral assistance that is made available, the less these currencies may need to adjust," it added.

For a text of the NBH statement, click [ID:nLK935441] (Reporting by Sandor Peto; Editing by Andy Bruce)

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