April 6, 2017 / 9:20 AM / 3 months ago

CEE MARKETS-Crown firms as central bank may end crown cap soon

7 Min Read

    * Czech central bank holds non-policy meeting
    * Some investors think cenbank may abandon crown cap
    * Non-policy meeting results are normally not communicated
    * Implied rate strongest since 2013 in 3-month forward deals

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, April 6 (Reuters) - The crown firmed on the
spot market and in forwards on Thursday as the Czech central
bank was holding a meeting where some market players said it may
remove its 3-and-1/2-year cap on the crown's value.
    If it does so, the currency may face heavy swings around the
cap level, dealers and analysts have said.
    One dealer said he saw market expectations growing that the
bank (CNB) could use the meeting to decide on the end of the 
cap which has kept the crown weaker than 27 against the euro
since 2013.
    "I think there is chance it could be today and would think
there could be some more selling of euros to buy crowns just for
a try in the morning," the dealer said.
    "Anyway it would be good test for market forces."
    The Czech central bank normally does not communicate results
of its weekly non-policy meetings. The meeting was due to start
at 0700 GMT.
    The crown traded 0.1 percent firmer, at 27.02
against the euro, while the Polish zloty eased 0.1
percent. The crown's implied rates in forward contracts also
strengthened, with the 3-month rate touching its firmest level
since 2013, at 26.789. 
    The bank has tripled its foreign currency reserves since
2013 to defend the cap and most analysts think that it will seek
to get rid of the cap soon, possibly this month or in May.
    Its euro buying picked up in the past months as many
investors speculated that the steadily growing and stable Czech
economy could help the crown surge once the cap is removed.
Others, however, fear that the currency has got overbought.
    The bank's commitment to keep the cap ended on Friday and it
did not extend it as inflation, which had been anaemic around
zero for years, has reached the bank's 2 percent target in the
past months.
    In a Reuters poll of analysts published on Thursday, seven
of 16 analysts predicted that the crown would firm past the
current cap level by the end of April. For end-June, 13 of 18
analysts projected a firmer level than 27.
    Market participants expect a jump in volatility of the crown
once the cap is removed.
    Generali Investments CEE chief economist Radomir Jac said
the bank was likely to wait to see March inflation figures, due
on April 10, before removing the cap. 
              CEE        SNAPS   AT  1025          
              MARKETS    HOT    CET           
                         CURRENCIES                
                         Lates  Previ  Daily  Chang
                         t      ous           e
                         bid    close  chang  in
                                       e      2017
 Czech crown             27.02  27.03   +0.0  -0.05
                            00     95     7%      %
 Hungary                 310.4  310.3  -0.02  -0.52
 forint                    300    750      %      %
 Polish                  4.237  4.232  -0.13  3.92%
 zloty                       6      3      %  
 Romanian                4.524  4.530   +0.1  0.23%
 leu                         8      0     1%  
 Croatian                7.460  7.448  -0.16  1.27%
 kuna                        0      2      %  
 Serbian                 123.7  123.8   +0.0  -0.31
 dinar                     300    250     8%      %
 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                  977.7  980.7  -0.31   +6.0
                             2      8      %     9%
 Budapest                32373  32405  -0.10   +1.1
                           .01    .13      %     6%
 Warsaw                  2236.  2253.  -0.74   +14.
                            89     64      %    83%
 Bucharest               8217.  8201.   +0.2   +15.
                            92     83     0%    99%
 Ljubljana               778.8  779.2  -0.06   +8.5
                             1      9      %     3%
 Zagreb                  1938.  1946.  -0.43  -2.83
                            30     65      %      %
 Belgrade     <.BELEX15  729.4  729.4   +0.0   +1.6
              >              4      7     0%     8%
 Sofia                   643.1  641.7   +0.2   +9.6
                             9      7     2%     8%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.24  0.038   +056   +5bp
              >              2           bps      s
   5-year     <CZ5YT=RR  0.126  0.015   +059   +2bp
              >                          bps      s
   10-year    <CZ10YT=R  0.918      0   +067   +0bp
              R>                         bps      s
 Poland                                            
   2-year     <PL2YT=RR   2.03  0.009   +283   +2bp
              >                          bps      s
   5-year     <PL5YT=RR  2.895   0.02   +336   +2bp
              >                          bps      s
   10-year    <PL10YT=R  3.471  0.038   +322   +4bp
              R>                         bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <   0.28   0.33   0.37      0
              PRIBOR=>                        
 Hungary              <   0.22   0.27   0.35   0.18
              BUBOR=>                         
 Poland               <   1.75   1.77  1.799   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Reporting by Sandor Peto; Editing by Alison Williams)
  
 
 

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