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4 months ago
CEE MARKETS-Crown plunges as central bank drops mid-year cap removal guidance
March 30, 2017 / 2:22 PM / 4 months ago

CEE MARKETS-Crown plunges as central bank drops mid-year cap removal guidance

7 Min Read

    * Crown falls in spot market to 18-month low vs euro
    * Crown 3-month forwards slide to 3-mth low from
3-and-1/2-yr high
    * Hungary lifts bond offer, yields fall
    * Croatian stocks tumble on concerns over food group Agrokor

 (Recasts with central bank meeting, crown slide)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, March 30 (Reuters) - The crown plunged in
the spot market and in forward contracts on Thursday as the
Czech central bank (CNB) gave up its guidance to end its 3
1/2-year-old weak crown regime around mid-2017.
    It confirmed after a meeting that its "hard commitment" to
keep the crown weaker than 27 against the euro at least until
the end of the first quarter would end soon, and now it could
exit the regime at any time.
    The crown fell 0.7 percent against the euro by
1429 GMT to an 18-month low at 27.21. 
    Its implied rate in 3-month forward contracts EURCZK3MV=
fell sharply to 27.01, a 3-month-low, after touching its
strongest levels since 2013 in early trade at 26.796. In
one-month forwards, it hit a 9-month low at 27.12.  
    The crown's plunge started after CNB Governor Jiri Rusnok
said the probability of a mid-year exit from the cap was lower
"because we are certainly closer to the fulfillment of the
sustainable inflation criterion than we had been before".    
    It is highly uncertain how the crown will move after its cap
is removed.
    Investors have heavily bought the crown and Czech government
debt, mainly shorter maturities, speculating that a growing and
stable economy would boost the crown once the cap is gone.
    But a huge amount of accumulated long crown positions raises
the question whether there will be enough buyers to prevent a
slide of the currency if its holders unload it.
    The CNB has tripled its foreign currency reserves in defence
of the cap and it bought tens of billions of euros only in the
past few months.
    One Prague-based dealer said London names were selling the
crown. 
    "We would not regard the exit of the FX regime as the start
of a one-way CZK (crown) appreciation streak, but would rather
expect significant volatility possibly well into Q3 2017," 
Raiffeisen analyst Wofgang Ernst said in a note before the
meeting.
    Elsewhere in Central Europe, Hungary lifted its offer by
more than 50 percent at its bond auctions
 as demand surged, pushing yields below secondary
market levels.
    Zagreb's stock index fell 2.9 percent and the kuna
 eased 0.2 percent to 6-week lows against the euro due
to worries over Agrokor, the biggest food producer and retailer
in the Balkans. 
    The decline followed news that the Croatian government may 
propose a law on shielding the economy from troubles involving
big firms and about a possible repayment freeze deal with
Agrokor creditors.
    
              CEE        SNAPS   AT  1529          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             27.21  27.02  -0.69  -0.75
                            00     15      %      %
 Hungary                 309.3  309.8   +0.1  -0.17
 forint                    500    750     7%      %
 Polish                  4.220  4.221   +0.0  4.35%
 zloty                       5      8     3%  
 Romanian                4.544  4.554   +0.2  -0.21
 leu                         5      7     2%      %
 Croatian                7.450  7.434  -0.21  1.41%
 kuna                        0      2      %  
 Serbian                 123.8  123.8   +0.0  -0.40
 dinar                     500    900     3%      %
 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                  985.8  982.7   +0.3   +6.9
                             4      1     2%     7%
 Budapest                31989  32232  -0.75  -0.04
                           .63    .95      %      %
 Warsaw                  2195.  2214.  -0.87   +12.
                            10     45      %    69%
 Bucharest               8006.  7942.   +0.8   +13.
                            14     76     0%    00%
 Ljubljana               772.0  777.5  -0.72   +7.5
                             0      8      %     8%
 Zagreb                  1960.  2015.  -2.72  -1.73
                            38     12      %      %
 Belgrade     <.BELEX15  733.5  737.4  -0.53   +2.2
              >              5      7      %     6%
 Sofia                   630.6  633.3  -0.42   +7.5
                             9      4      %     5%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.57  -0.08   +015  -9bps
              >              7      6    bps  
   5-year     <CZ5YT=RR  0.138  -0.00   +051   +0bp
              >                     6    bps      s
   10-year    <CZ10YT=R   0.97  -0.01   +063  -2bps
              R>                    8    bps  
 Poland                                            
   2-year     <PL2YT=RR  2.032  0.008   +276   +0bp
              >                          bps      s
   5-year     <PL5YT=RR   2.91  -0.05   +328  -4bps
              >                     3    bps  
   10-year    <PL10YT=R  3.519  -0.01   +318  -1bps
              R>                    7    bps  
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.28   0.32   0.38      0
              PRIBOR=>                        
 Hungary              <    0.2   0.26   0.36   0.18
              BUBOR=>                         
 Poland               <  1.753  1.775  1.817   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Additional reporting by Igor Ilic in Zagreb; Editing by Mark
Heinrich)
  
 
 

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