March 26, 2020 / 9:57 AM / 11 days ago

CEE MARKETS-Currencies weaker, Czech central bank seen cutting rates

    BUCHAREST, March 26 (Reuters) - Central European currencies
weakened against the euro on Thursday as fears of a global
recession overtook stimulus measures, while the Czech central
bank was expected to further cut interest rates.
    Analysts polled by Reuters widely expect The Czech National
Bank to cut rates by another 50 basis points later on Thursday,
following another half-percentage-point cut earlier this month,
as it seeks to soften the economic blow from the coronavirus
outbreak.
    Questions remain on the central bank's next moves as markets
price in aggressive rate cuts in the months ahead. CSOB analysts
said the bank is unlikely to be as aggressive. 
    "Quick moves could start new volatility amid low liquidity
and quicken the outflow of capital abroad," the bank said.
    Markets also see chances the central bank could be active in
the secondary market after legislation widening the assets it
can buy - currently limited to maturities of up to one year -
goes through parliament next month.
    "EUR/CZK price action will fully depend on how the central
bank will or will not communicate the QE," ING bank said in a
statement.
    By  0910 GMT, the Czech crown traded 0.2 percent
down against the euro at 27.5300.
    So far, potential quantitative easing plans have supported
markets, and analysts said they helped boost demand at a state
bond auction on Wednesday, where several times more debt than
planned was sold.
    Elsewhere in the region, the Hungarian forint was
down 0.5% against the euro at 355.7800. 
    Hungary may have to raise its budget deficit target this
year as the government revises its 2020 budget to cope with the
coronavirus outbreak, the finance minister said on Thursday.
    Hungary has kept is budget deficit well below the European
Union's limit -- 3% of gross domestic product -- in recent years
as Orban's government worked to wrestle down some of the largest
debt in central Europe.
    "The 2020 Hungarian budget has substantial reserves, so we
have resources to tap now as trouble has reared its head," 
Mihaly Varga said in a post on his Facebook page on Thursday.
    "However, if this is not enough, sticking staunchly to a
deficit below 3% would be a mistake."
    The Monetary Council left interest rates on hold on Tuesday
and moved to pump more money into the banking system by
introducing a massive fixed-rate collateralised loan instrument.

    It provided 43.1 billion forints ($132.06 million) worth of
funds to banks at its first collateralised loan tender on
Wednesday, offering liquidity to banks at a fixed rate of 0.9%,
it said.
    The Czech, Polish and Romanian central banks have cut their
benchmark rates and announced further measures to shore up
economic activity. 
    Romania too was likely to raise its deficit target at a
budget revision in April, the finance minister said, but unlike
its Hungarian neighbour, Bucharest is already running a deficit
above EU limits, leaving it more vulnerable to investor flight.
    On Thursday, the ministry said it plans to tap foreign
markets for further issues worth 10 billion euros ($10.9
billion) by 2022.
    The Romanian leu was down 0.1% versus the euro, as
was the Polish zloty, which traded at 4.5773.
    Poland's central bank will carry out its third treasury bond
buy-back operation later on Thursday.
    
            CEE       SNAPSHO   AT                      
            MARKETS   T        0950              
                               CET               
                      CURRENC                           
                      IES                        
                      Latest   Previou  Daily    Change
                               s                 
                      bid      close    change   in 2020
 Czech      <EURCZK=  27.5300  27.4690   -0.22%   -7.62%
 crown      >                                    
 Hungary    <EURHUF=  355.780  353.920   -0.52%   -6.92%
 forint     >               0        0           
 Polish     <EURPLN=   4.5773   4.5726   -0.10%   -7.01%
 zloty      >                                    
 Romanian   <EURRON=   4.8377   4.8350   -0.06%   -1.02%
 leu        >                                    
 Croatian   <EURHRK=   7.6060   7.6119   +0.08%   -2.11%
 kuna       >                                    
 Serbian    <EURRSD=  117.420  117.460   +0.03%   +0.13%
 dinar      >               0        0           
 Note:      calculated from             1800            
 daily                                  CET      
 change                                          
                                                        
                      Latest   Previou  Daily    Change
                               s                 
                               close    change   in 2020
 Prague                801.85  807.650   -0.72%  -28.13%
                                     0           
 Budapest             32882.2  32690.4   +0.59%  -28.65%
                            4        5           
 Warsaw               1443.87  1441.83   +0.14%  -32.85%
 Bucharest            7598.80  7621.00   -0.29%  -23.84%
 Ljubljana  <.SBITOP   720.90   727.51   -0.91%  -22.14%
            >                                    
 Zagreb               1408.33  1423.61   -1.07%  -30.19%
 Belgrade   <.BELEX1   641.67   629.80   +1.88%  -19.96%
            5>                                   
 Sofia                 423.66   426.13   -0.58%  -25.43%
                                                        
                      Yield    Yield    Spread   Daily
                      (bid)    change   vs Bund  change
                                                 in
 Czech                                           spread
 Republic                                        
   2-year   <CZ2YT=R   1.2350   0.0120   +183bp    +1bps
            R>                                s  
   5-year   <CZ5YT=R   1.5210   0.0810   +202bp   +10bps
            R>                                s  
   10-year  <CZ10YT=   1.8300   0.2110   +214bp   +23bps
            RR>                               s  
 Poland                                                 
   2-year   <PL2YT=R   0.9030  -0.0720   +150bp    -8bps
            R>                                s  
   5-year   <PL5YT=R   1.2830  -0.0330   +178bp    -1bps
            R>                                s  
   10-year  <PL10YT=   1.8040  -0.0440   +211bp    -3bps
            RR>                               s  
            FORWARD                                     
                      3x6      6x9      9x12     3M
                                                 interba
                                                 nk
 Czech Rep               0.62     0.47     0.41     1.74
            <PRIBOR=                             
            >                                    
 Hungary                 0.32     0.29     0.31     0.50
                                                 
 Poland                  0.61     0.48     0.47     1.17
                                                 
 Note: FRA  are for ask                                 
 quotes     prices                               
 **********************************************         
 ****************                                
 
 (Reporting by Luiza Ilie in Bucharest, Jason Hovet in Prague,
Alan Charlish in Warsaw and Anita Komuves in Budapest; editing
by Larry King)
  
 
 
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