May 4, 2017 / 2:35 PM / 3 months ago

CEE MARKETS-Crown eases after Czech central bank says currency key to rate policy

7 Min Read

    * Crown falls as CNB says rate policy will hinge on fx rate
    * Zloty off 20-month high, Polish stocks off 23-month high
    * Kuna firms, Croatia finance minister survives
no-confidence vote
    * Bulgarian parliament approves new government

 (Recasts with Czech central bank comments, retreat of Polish
stocks, Croatian and Bulgarian parliament votes)
    By Sandor Peto
    BUDAPEST, May 4 (Reuters) - The crown eased, while other
Central European assets were mixed, after the Czech central bank
(CNB) said on Thursday that the strength of the currency will be
a key factor in whether it will need to lift interest rates.
    Central banks in the European Union's eastern wing have
shown no signs that a rebound in inflation since late 2016 could
prompt them to start reversing years of interest rate loosening
any time soon.
    The CNB, however, four weeks ago removed its cap which had
kept the crown weaker than 27 against the euro.
    The move could lead to a tightening of monetary conditions
even without interest rate hikes if the stable and
steadily-growing Czech economy strengthens the crown.
    The currency is seen gaining more than 4 percent against the
euro in the coming year, according to analysts in a Reuters
poll.
    Yet recent speculative crown buying positions worth tens of
billions of euros may keep it volatile in the coming months,
preventing a sustainable rise.
    The CNB kept interest rates on hold at its meeting on
Thursday as expected.
    Governor Jiri Rusnok said a protracted period of the crown
staying near its former cap would increase the need for policy
tightening more than if the currency firms. 
    The collapse of the Czech coalition government on Tuesday
did not dent the currency as investors continued to ignore the
political situation in the Czech Republic which is regarded as
the region's safe-haven market. 
    After the CNB comments, the currency eased against the euro,
trading at 26.845 at 1342 GMT, down a quarter of a percent.
    Elsewhere in the region, the zloty shed 0.5
percent to 4.22 against the euro, but dealers said that was a
natural correction after a jump to 20-month highs on Wednesday
in illiquid international markets, when local exchanges were
closed due to a national holiday.
    Warsaw's main equities index fell 0.8 percent after
initially hitting a 23-month high. It was knocked down mainly by
a 4.1 percent decline in the stocks of heavyweight copper
producer KGHM, after London copper prices stumbled.

    Other regional stock indices were mostly rangebound.
    Zagreb's index firmed a shade, and the kuna
 rose 0.2 percent to the euro, after Croatian Finance
Minister Zdravko Maric narrowly survived a no-confidence vote.
The government still faces a tough fight to avert snap
elections.
    Sofia's main stock index was steady after
parliament endorsed the new coalition government.
    
             CEE        SNAPS   AT  1542          
             MARKETS    HOT    CET           
                        CURRENCIES                
                        Lates  Previ  Daily  Chang
                        t      ous           e
                        bid    close  chang  in
                                      e      2017
 Czech                  26.84  26.77  -0.26  0.60%
 crown                     50     55      %  
 Hungary                311.8  311.9   +0.0  -0.98
 forint                   900    500     2%      %
 Polish                 4.220  4.200  -0.46  4.36%
 zloty                      1      7      %  
 Romanian               4.546  4.547   +0.0  -0.25
 leu                        3      4     2%      %
 Croatian               7.439  7.451   +0.1  1.56%
 kuna                       0      5     7%  
 Serbian                123.1  123.1   +0.0  0.17%
 dinar                    400    950     4%  
 Note:       calculate  previ  close  1800        
 daily       d from     ous    at     CET    
 change                                      
                        STOCK                     
                        S                    
                        Lates  Previ  Daily  Chang
                        t      ous           e
                               close  chang  in
                                      e      2017
 Prague                 998.9  996.2   +0.2   +8.3
                            7      9     7%     9%
 Budapest               32180  32077   +0.3   +0.5
                          .85    .72     2%     6%
 Warsaw                 2373.  2392.  -0.77   +21.
                           57     09      %    85%
 Bucharest              8251.  8209.   +0.5   +16.
                           54     88     1%    46%
 Ljubljana              778.6  777.6   +0.1   +8.5
                            3      1     3%     1%
 Zagreb                 1891.  1890.   +0.0  -5.17
                           79     16     9%      %
 Belgrade    <.BELEX15  715.7  719.9  -0.59  -0.23
             >              5      7      %      %
 Sofia                  664.4  664.7  -0.05   +13.
                            0      1      %    30%
                        BONDS                     
                        Yield  Yield  Sprea  Daily
                                      d      
                        (bid)  chang  vs     chang
                               e      Bund   e in
 Czech                                       sprea
 Republic                                    d
   2-year    <CZ2YT=RR  -0.13   0.04   +057   +3bp
             >              7           bps      s
   5-year    <CZ5YT=RR  0.025  -0.01   +035  -6bps
             >                     7    bps  
   10-year   <CZ10YT=R  0.818  -0.00   +043  -7bps
             R>                    4    bps  
 Poland                                           
   2-year    <PL2YT=RR  2.007  0.008   +272   +0bp
             >                          bps      s
   5-year    <PL5YT=RR   2.92  0.019   +325  -2bps
             >                          bps  
   10-year   <PL10YT=R  3.484  0.039   +309  -2bps
             R>                         bps  
             FORWARD    RATE   AGREEMENT          
                        3x6    6x9    9x12   3M
                                             inter
                                             bank
 Czech Rep           <   0.34   0.41   0.52      0
             PRIBOR=>                        
 Hungary             <   0.25   0.35   0.46   0.16
             BUBOR=>                         
 Poland              <  1.751   1.78   1.84   1.73
             WIBOR=>                         
 Note: FRA   are for                              
 quotes      ask                             
             prices                          
 *************************************************
 *************
 
 (Additional reporting by Luiza Ilie in Bucharest and Bartosz
Chmielewski in Warsaw; Editing by Toby Davis)
  
 
 

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