March 13, 2017 / 10:33 AM / in 9 months

CEE MARKETS-Currencies trade near multi-month lows on Fed, ECB outlooks

    * Zloty touches 7-week low, leu near 9-month low
    * Polish central bank sees CPI below target until 2019
    * Romanian wages surge, concern over deficit

    By Sandor Peto
    BUDAPEST, March 13 (Reuters) - Central Europe's main
currencies traded near multi-month lows on Monday after monetary
policy expectations turned more hawkish both in the United
States and the euro zone last week.
    That contrasts with the loose monetary policy outlook in
some of the region's main economies.
    Friday's strong U.S. jobs data underpinned expectations for
a Fed interest rate hike this week and investors are betting on
a euro zone hike early next year after the European Central
Bank's meeting on Thursday.
    Concerns that "local central banks, especially in Hungary,
Poland and Romania, would underestimate reflation risks may keep
the reflation trade in many CEE countries in vogue," Raiffeisen
analyst Stephan Imre said in a note, referring to a trade that
involves selling CEE currencies and buying the euro. 
    The Polish central bank said inflation could stay below its
target of 2.5 percent until 2019, in the latest sign the
region's central banks are not worried about the past few
months' rapid rebound in inflation.
    It also said the zloty was significantly weaker
than suggested by its fundamentals and cited the prospect of
above-3 percent economic growth in coming years.
    But the zloty touched a 7-week low against the euro. Trading
at 4.3425 at 0937 GMT, it was 0.2 percent lower than Friday,
weakened by expectations for higher Fed and euro zone interest
rates.
    "In our base case we assume that the Fed will not scare
markets and that the zloty may return to a consolidation range
of 4.26-4.32 vs euro in the next few weeks," said Bank Pekao
economist Arkadiusz Urbanski. 
    The zloty has outperformed the forint and the leu
 this year, which were near their respective 3-month
and 9-month lows set late last week.
    The leu was 0.1 percent down from Friday's close, at 4.5515,
after January figures showed Romania's monthly trade deficit
doubled, while net average wages surged 18.4 percent in annual
terms, boosted by public sector increases.
    Investors' concern is that the budget deficit may exceed 3
percent of economic output, the European Union's threshold, and
that political tension over corruption may rise again, after
culminating in huge anti-government protests last month.
    Erste analysts said in a note the Czech crown had
the largest strengthening potential in the region, with the
central bank expected to remove its cap on the currency soon,
probably in April.
    The zloty may still firm slightly later this year, pricing
in expectations for a Polish central bank interest rate in 2018,
Erste added.
    
              CEE        SNAPS   AT  1037          
              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
                            10     45     1%      %
 Hungary                 312.6  312.7   +0.0  -1.21
 forint                    000    850     6%      %
 Polish                  4.342  4.334  -0.19  1.41%
 zloty                       5      4      %  
 Romanian                4.551  4.547  -0.09  -0.36
 leu                         5      3      %      %
 Croatian                7.432  7.419  -0.17  1.66%
 kuna                        0      5      %  
 Serbian                 123.8  123.7  -0.03  -0.38
 dinar                     200    800      %      %
 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                  982.3  972.3   +1.0   +6.5
                             8      1     4%     9%
 Budapest                32597  32727  -0.40   +1.8
                           .75    .24      %     6%
 Warsaw                  2224.  2200.   +1.1   +14.
                            64     03     2%    21%
 Bucharest               7892.  7894.  -0.02   +11.
                            27     09      %    39%
 Ljubljana               794.5  793.3   +0.1   +10.
                             2      7     4%    72%
 Zagreb                  2230.  2225.   +0.2   +11.
                            85     09     6%    83%
 Belgrade     <.BELEX15  741.4  739.7   +0.2   +3.3
              >              5      2     3%     6%
 Sofia                   623.3  624.9  -0.25   +6.3
                             6      1      %     0%
                         BONDS                     
                         Yield  Yield  Sprea  Daily
                                       d      
                         (bid)  chang  vs     chang
                                e      Bund   e in
 Czech                                        sprea
 Republic                                     d
   2-year     <CZ2YT=RR  -0.62  -0.01   +020   +0bp
              >              1           bps      s
   5-year     <CZ5YT=RR  0.055  0.062   +038   +10b
              >                          bps     ps
   10-year    <CZ10YT=R  0.781  0.105   +033   +15b
              R>                         bps     ps
 Poland                                            
   2-year     <PL2YT=RR  2.112  0.003   +293   +1bp
              >                          bps      s
   5-year     <PL5YT=RR   3.07  -0.02   +340   +1bp
              >                     6    bps      s
   10-year    <PL10YT=R  3.714  -0.03   +327   +1bp
              R>                    8    bps      s
              FORWARD    RATE   AGREEMENT          
                         3x6    6x9    9x12   3M
                                              inter
                                              bank
 Czech Rep            <    0.3   0.37   0.47      0
              PRIBOR=>                        
 Hungary              <   0.34  0.455   0.61   0.23
              BUBOR=>                         
 Poland               <  1.755   1.78   1.84   1.73
              WIBOR=>                         
 Note: FRA    are for                              
 quotes       ask                             
              prices                          
 **************************************************
 ************
 
 (Additional reporting by Luiza Ilie in Bucharest and Marcin
Goettig in Warsaw; Editing by Mark Potter)
  
 
 

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