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UPDATE 1-CEE MARKETS-Romanian assets slide as government tables tax plans
June 29, 2017 / 2:01 PM / 6 months ago

UPDATE 1-CEE MARKETS-Romanian assets slide as government tables tax plans

 (Recasts with Romanian markets, Czech rate decision, updates
    * Big tax changes weigh on Romanian stocks, leu currency
    * New Romanian government awaits parliamentary approval
    * Czech central bank keeps rates unchanged as expected
    * Czech crown firms half a percent

    By Luiza Ilie and Jason Hovet
    BUCHAREST/PRAGUE, June 29 (Reuters) - The Romanian leu
dropped half a percent and stocks plunged on Thursday as the new
government tabled a tax plan before heading for a confidence
vote in Parliament it was widely expected to win.
    The ruling Social Democrats plan to replace a flat 16
percent corporate tax on profit with a multi-levelled tax on
turnover and introduce "a solidarity contribution" next year, a
revised governing programme showed.
    They also plan to liquidate a mandatory private pension
system that was introduced in 2008 to supplement ailing state
    Romania's economy grew at the fastest rate in central Europe
in the first quarter, but political turmoil and policy
uncertainty have weighed on its markets in the past weeks. 
    The new tax and private pension plans, which had not been
discussed with businesses beforehand, brought additional
unpredictability to edgy investors on Thursday.
    By 1249 GMT the leu fell 0.5 percent,
underperforming its regional peers, while the Romanian stock
market index was down 2 percent.
    Mihai Tudose was named prime minister on Monday after the
ruling parties sacked former premier Sorin Grindeanu on June 21
for failing to implement an ambitious programme that helped the
coalition parties win a December election. 
    A majority of ministers from the ousted cabinet feature in
the new government lineup. It is likely to receive approval
given the comfortable parliamentary majority held by the ruling
Social Democrat Party (PSD) and its junior partner ALDE.
    The confidence vote is expected later on Thursday. 
    Politics is expected to impact the Romanian currency in the
longer term, an analyst said.
    "Even if this (vote today) brings an end to the government
crisis for now, politics remain a factor of uncertainty in
Romania," Commerzbank said in a note.
    "The case of the previous government illustrated just how
quickly Dragnea can withdraw his support."
    Romania's strong economic growth, however, could support the
leu, Commerzbank added.
    "Focus is now likely to increasingly rest on the positive
fundamental environment, and we see appreciation potential for
RON," it added.
    The Czech central bank kept its key interest rate unchanged
near zero on Thursday as expected.
    The bank said it was likely to raise interest rates for the
first time in almost a decade in the third quarter, in line with
its current economic outlook.
    Several of the bank's board members, including Governor Jiri
Rusnok, have said previously that the tightening might come
after the third quarter if the crown currency appreciates
    On Thursday, Rusnok said the crown exchange remained a
significant source of uncertainty, after the central bank freed
it in April from a currency cap that kept it weak. 
    The crown was trading half a percent stronger at
1240 GMT on Thursday. 
    A dealer said markets, which have been pricing in later rate
hikes, may start taking the central bank rhetoric more seriously
"but (it is) probably not necessary to push EURCZK too
low...when the CNB may change the timing (of rate hikes)."
               CEE MARKETS  SNAPSH   AT  1439 CET         
                            Latest  Previo  Daily   Change
                            bid     close   change  in
 Czech crown                26.170  26.302   +0.51   3.20%
                                 0       5       %  
 Hungary                    310.11  309.74  -0.12%  -0.42%
 forint                         00      00          
 Polish zloty               4.2475  4.2325  -0.35%   3.68%
 Romanian leu               4.5731  4.5502  -0.50%  -0.83%
 Croatian                   7.4135  7.4115  -0.03%   1.91%
 Serbian                    120.56  120.96   +0.33   2.31%
 dinar                          00      00       %  
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            Latest  Previo  Daily   Change
                                    close   change  in
 Prague                     979.04  977.22   +0.19   +6.23
                                                 %       %
 Budapest                   35333.  35455.  -0.35%   +10.4
                                34      97              1%
 Warsaw                     2327.6  2327.6   +0.01   +19.5
                                 8       8       %      0%
 Bucharest                  8020.3  8168.3  -1.81%   +13.2
                                 7       7              0%
 Ljubljana                  796.20  794.79   +0.18   +10.9
                                                 %      5%
 Zagreb                     1878.2  1877.7   +0.03  -5.85%
                                 0       1       %  
 Belgrade                   714.10  709.83   +0.60  -0.46%
 Sofia                      704.17  702.21   +0.28   +20.0
                                                 %      8%
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
   2-year                    0.064   0.015   +064b   -1bps
   5-year                    0.033   0.085   +027b   +2bps
   10-year                   0.982   0.086   +054b   +0bps
   2-year                    1.929   0.029   +250b   +1bps
   5-year                    2.704   0.071   +294b   +0bps
   10-year                   3.351   0.066   +291b   -2bps
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
 Czech Rep             <PR    0.34    0.43    0.54       0
 Hungary               <BU     0.2    0.25    0.31    0.15
 Poland                <WI   1.747     1.8    1.85    1.73
 Note: FRA     are for ask                                
 quotes        prices                               
 (Writing by Marton Dunai/Krisztina Than, editing by Toby Davis)

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