March 27, 2019 / 10:55 AM / 6 months ago

CEE MARKETS-Forint sets 2-month low after dovish central bank hike

    * Hungarian central bank crushed bets for gradual rate
    * Bonds track continuing Bund, UST yield decline
    * Bucharest stocks buck fall in Europe, on new tax decree

    By Sandor Peto
    BUDAPEST, March 27 (Reuters) - The forint extended its
losses, hitting a 2-month low against the euro on Wednesday,
after the Hungarian central bank (NBH) dropped its guidance for
gradual monetary tightening.
    The NBH, which has been regarded as the most dovish central
bank in the eastern wing of the European Union for most of this
decade, halted a nearly seven-year run of monetary easing by
raising its overnight deposit rate on Tuesday.
    It increased the rate by 10 basis points to -0.05 percent,
keeping its base rate on hold at a record-low 0.9 percent as
    But it surprised many investors who had expected a gradual
increase in Hungarian interest rates, as the central bank itself
had until most recently communicated.
    It said that the hike was a one-off as surging wages had put
upside pressure on inflation, while slowing growth in the global
economy and the euro zone have the opposite impact.
    There is no drastic inflation pressure in the Hungarian
economy, Prime Minister Viktor Orban's nominee for NBH deputy
governor, Mihaly Patai, said on Wednesday, striking a similarly
dovish tone.  
    The forint, after its biggest daily drop for years
on Tuesday, pierced the 320 psychological line on Wednesday,
shedding almost half a percent on the day by 1021 GMT and
reaching its weakest level since mid-January at 320.12.
    Central Europe's most liquid unit, the zloty,
meanwhile, eased 0.2 percent and the leu 0.15 percent.
    Hungarian government bonds, which have outperformed regional
peers and Bunds in a rally in the past weeks, extended their
    The 10-year benchmark bond traded around a yield of 2.85
percent, the lowest since early March when the underlying paper
was replaced by one with a longer maturity.
    Poland's corresponding yield dropped 5 basis points to 2.80
percent, tracking Bunds and U.S. Treasuries, even though
Tuesday's comments from Prime Minister Mateusz Morawiecki
triggered some worries over the Polish budget deficit.
    "The statement that government will 'try' (to keep the
deficit below the EU's threshold of 3 percent of economic
output) may not be enough to calm down rating agencies,"
Santander analysts said in a note.
    In their rating reviews in the next few weeks, the three
main agencies are unlikely to change their rating yet, but "may
express their opinions in a more precautionary tone", Santander
    Bucharest's blue-chip stock index rose to 3-month
highs. Gaining 0.5 percent, it bucked a mild decline in indexes
elsewhere in the region.
    A much-awaited draft government decree showed that a widely
criticised new Romanian bank tax would be lowered and de-linked
from money market rates, while measures to increase taxes in the
energy sector would remain mostly unchanged.
    Romania also mandated bookrunners for selling 7-, 15- and
30-year euro-denominated benchmark bonds.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1121 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.7750   25.7550    -0.08%    -0.26%
 crown      >                                       
 Hungary    <EURHUF=  320.1200  318.7000    -0.44%    +0.30%
 forint     >                                       
 Polish     <EURPLN=    4.2985    4.2906    -0.18%    -0.21%
 zloty      >                                       
 Romanian   <EURRON=    4.7595    4.7525    -0.15%    -2.22%
 leu        >                                       
 Croatian   <EURHRK=    7.4250    7.4205    -0.06%    -0.20%
 kuna       >                                       
 Serbian    <EURRSD=  117.9000  117.9100    +0.01%    +0.34%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1070.75  1074.350    -0.34%    +8.53%
 Budapest             41416.18  41740.97    -0.78%    +5.82%
 Warsaw                2315.57   2324.91    -0.40%    +1.71%
 Bucharest             8080.18   8044.12    +0.45%    +9.43%
 Ljubljana  <.SBITOP    875.21    874.64    +0.07%    +8.82%
 Zagreb                1788.51   1791.68    -0.18%    +2.27%
 Belgrade   <.BELEX1    730.62    730.05    +0.08%    -4.08%
 Sofia                  578.81    578.37    +0.08%    -2.63%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.7540   -0.1710   +234bps    -15bps
   5-year   <CZ5YT=R    1.7640   -0.0160   +222bps     +1bps
   10-year  <CZ10YT=    1.8620    0.0060   +192bps     +5bps
   2-year   <PL2YT=R    1.6680   -0.0130   +225bps     +1bps
   5-year   <PL5YT=R    2.1840   -0.0310   +264bps     +0bps
   10-year  <PL10YT=    2.8210   -0.0480   +288bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.13      2.18      2.17      2.02
 Hungary                  0.29      0.35      0.45      0.19
 Poland                   1.73      1.73      1.74      1.72
 Note: FRA  are for ask prices                              
 (Editing by Gareth Jones)
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