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REFILE-EMERGING MARKETS-EM stocks, FX enjoy relief rally; Polish rate decision in focus

·3 min read

(Removes extraneous word in first paragraph)

* Chipmakers lift benchmark KOSPI

* 75 bps rate hike seen in Poland

* HUF slides despite deposit rate hike

By Sruthi Shankar

July 7 (Reuters) - Emerging market currencies enjoyed a respite from their recent sell-off as the dollar retreated on Thursday, while a rally in chipmakers and reports of economic stimulus in China lifted several regional stock markets.

The Korean won, the South African rand and the Mexican peso all gained, having fallen over the past few days on worries of a global recession that sent investors scurrying toward the safe-haven dollar.

The dollar weakened slightly on Thursday as investors grappled with the possibility of a pause in interest rate hikes amid signs of an economic downturn and easing commodity prices.

The MSCI index of EM currencies edged up 0.1% after hitting a 20-month low earlier this week.

The Polish zloty slipped toward March lows versus the euro, trading down 0.1% at 4.8 ahead of a central bank decision where policymakers are expected to hike interest rates by 75 basis points to 6.75%.

"It's a good trade off to go for 75 basis point hike to address the situation around still elevated inflation but we've also seen a very weak PMI print," said Christian Wietoska, a strategist at Deutsche Bank.

"If they go for 50, the market would not buy it. They would continue to price in still more rate hikes. The only way they can deliver a 100 is by giving a relatively dovish message on the back of it."

Governor Adam Glapinski said in June that the National Bank of Poland (NBP) was nearing the end of its rate-hike cycle, but with inflation at a 25-year high many economists think significant further tightening will be needed.

Meanwhile, the Hungarian forint fell, unable to benefit from a 200-basis-point hike of the central bank's key one-week deposit rate.

The forint, the worst performing central European currency this year, touched a record low of 416.9 per euro on Wednesday as soaring European gas prices and slowing business activity fuelled concerns about a recession in the bloc.

"CEE currencies are under severe depreciation pressure. In the last few trading days, fears of potential Russian gas scarcity, against a background of high inflation and wide current account deficits, have triggered a sharp selloff in regional currencies," JPMorgan economist Jose Cerveira said in a note.

Elsewhere, Sri Lanka raised interest rates to 15.50%, the highest level in two decades, to head off runaway inflation, while Serbia raised its benchmark rate to 2.75% from 2.50 %. .

MSCI EM equities index rose 1.0%, with wider European stock markets boosted by reports of economic stimulus in China.

Meanwhile, stocks in South Korea and Taiwan gained 1.8% and 2.5%, respectively, as chipmakers rallied after the world's largest memory-chip and smartphone maker Samsung Electronics posted its highest second quarter profit in four years.

For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see

(Reporting by Sruthi Shankar and Devik Jain in Bengaluru, Marc Jones in London; Editing by Vinay Dwivedi)