March 17, 2017 / 11:03 AM / 4 months ago

CEE MARKETS-Leu leads fx retreat, investors mull ECB rate hike prospects

7 Min Read

    * Currencies off post-Fed highs, leu sets 9-month low
    * Expectations for Dec ECB rate hike weighs on CEE fx, bonds
    * Leu eased through central bank's earlier tolerance
line-analysts

    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, March 17 (Reuters) - The leu led a
retreat of Central European currencies and government bonds as
euro zone markets priced in a likely European Central Bank
interest rate hike in December.
    With the region's central banks retaining loose monetary
policies, regional assets could become relatively less
attractive if euro zone yields rise.
    ECB policy maker Ewald Nowotny was quoted late on Thursday
as saying that the ECB will decide whether to raise rates before
or after ending its bond purchase programme.
    The comments pushed the forint and the zloty
 back from about 2-week highs against the euro, reached
after Wednesday's less hawkish than expected Fed comments.
    They regained some ground later, but at 1010 GMT were still
slightly weaker from Thursday.
    The leu has been particularly vulnerable this year
due to worries that Romania's new leftist government will
increase the budget deficit.
    The currency hit a 9-month low against the euro on Friday,
and, easing by 0.2 percent to 4.5665, it crossed the 4.56 line,
"where it was stopped short by the central bank several times in
previous years", Bucharest-based ING analysts said in a note.
    "We still believe that fundamentals work in favour of a
stronger RON (leu) and that the current risk balance (both
internal and external) does not justify current levels," they
said.
    "However, we cannot ignore the possibility that the central
bank might have turned more lenient towards upside EUR/RON
pressures," they added.
    International Monetary Fund officials are due to hold a news
conference on Friday about regular consultations with the
government and are expected to echo analysts' concerns that the
budget deficit could overshoot targets, potentially affecting
markets.
    Romanian government bonds changed little. Hungarian and
Polish bond yields rose by 1-3 basis points in a muted reaction
to the Nowotny comments.
    "(The comments) are in contrast with what the ECB said
earlier, that rate hikes could come after the asset purchases
end," one Budapest-based trader said.
    "(A December rate hike) could be possible only if everything
is nice at the French and German elections and the euro zone
economy," the trader added.
    The Czech crown's euro exchange rates implied in forwards
contracts hovered around multi-month
lows.
    Czech central bank Vice-Governor Mojmir Hampl reiterated on
Thursday that the bank is likely to end its cap, which keeps the
crown weaker than 27 against the euro, around the
middle of the year.
    But a Reuters poll on Thursday found most analysts see the
bank scrapping the cap at its May 4 policy meeting or earlier.
   
    
              CEE        SNAPS   AT  1110          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             27.02  27.02   +0.0  -0.05
                            00     45     2%      %
 Hungary                 309.5  309.3  -0.06  -0.22
 forint                    000    250      %      %
 Polish                  4.297  4.296  -0.04  2.47%
 zloty                       9      0      %  
 Romanian                4.566  4.556  -0.22  -0.69
 leu                         5      7      %      %
 Croatian                7.410  7.421   +0.1  1.96%
 kuna                        0      1     5%  
 Serbian                 123.9  124.0   +0.0  -0.44
 dinar                     000    100     9%      %
 Note: daily  calculate  previ  close  1800        
 change       d from     ous    at     CET    
                         STOCK                     
                         S                    
                         Lates  Previ  Daily  Chang
                         t      ous           e
                                close  chang  in
                                       e      2017
 Prague                  983.2  980.7   +0.2   +6.6
                             6      8     5%     9%
 Budapest                32833  33049  -0.65   +2.6
                           .76    .44      %     0%
 Warsaw                  2297.  2283.   +0.5   +17.
                            08     70     9%    92%
 Bucharest               7969.  7923.   +0.5   +12.
                            19     82     7%    48%
 Ljubljana               801.3  800.9   +0.0   +11.
                             1      8     4%    67%
 Zagreb                  2181.  2168.   +0.6   +9.3
                            72     63     0%     7%
 Belgrade     <.BELEX15  739.5  746.9  -0.99   +3.0
              >              7      7      %     9%
 Sofia                   632.4  624.3   +1.3   +7.8
                             9      1     1%     5%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.42  0.116   +035   +11b
              >              1           bps     ps
   5-year     <CZ5YT=RR  0.183  0.018   +048  -1bps
              >                          bps  
   10-year    <CZ10YT=R  0.965   0.01   +049  -2bps
              R>                         bps  
 Poland                                            
   2-year     <PL2YT=RR  2.129  0.039   +290   +3bp
              >                          bps      s
   5-year     <PL5YT=RR   3.11  0.045   +341   +2bp
              >                          bps      s
   10-year    <PL10YT=R  3.754  0.026   +328   +0bp
              R>                         bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <    0.3   0.35   0.45      0
              PRIBOR=>                        
 Hungary              <   0.32   0.45   0.63   0.23
              BUBOR=>                         
 Poland               <   1.78   1.81  1.855   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 

 (Additional reporting by Jason Hovet in Prague; Editing by
Robin Pomeroy)
  
 
 

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