July 24, 2018 / 9:34 AM / 2 months ago

CEE MARKETS-Forint bucks firming trend as central bank seen on hold

    * Hungarian central bank meets, seen holding rates at record
lows
    * Forint touches 3-week low, while other CEE currencies firm
    * Crown rises, Czech central banker sees possible hike on
Aug 2
    * Polish bond yields rise on redemptions

    By Sandor Peto
    BUDAPEST, July 24 (Reuters) - The forint touched 3-week
lows, bucking a strengthening trend in Central European
currencies, with Hungary's central bank (NBH) expected to keep
monetary conditions loose at its meeting on Tuesday.

    As the Federal Reserve has been increasing interest rates
and the European Central Bank withdrawing monetary stimulus, it
has become increasingly difficult for the NBH to maintain its
own ultraloose policy.
    Last month it said for the first time that loose monetary
conditions were unlikely to remain in place until the end of its
monetary policy horizon of 5 to 8 quarters.
    The past months' flow of investments into the rallying U.S.
dollar from emerging market assets knocked the forint to
record lows beyond 330 against the euro by early July.
    However, the Hungarian currency has rebounded since then as
the dollar failed to make further decisive gains and on Tuesday
was dancing around its previous closing levels.
    Forward rate agreements have priced out NBH rate
hike expectations over the past 2 or 3 weeks.
    The 12X15 FRA, which reflects expectations for short-term
interest rate levels a year from now, has dropped to 1.1 percent
from 1.36 percent, compared with the NBH's 0.9 percent base
rate, one Budapest-based fixed income trader said.  
    The forint briefly pierced 327 versus the euro on Tuesday,
but it was unable to break out of the past weeks' range around
325. At 0821 GMT it traded at 326.7, weaker by 0.2 percent.
    "No change is expected in the NBH's policy at the meeting,"
one currency dealer said, adding that the bank's comments will
be closely watched as investors wonder how and at what pace the
NBH could start to withdraw its monetary stimulus.
    Meanwhile, the crown firmed 0.2 percent to 25.781
versus the euro.
    Czech central bank board member Vojtech Benda was quoted as
saying on Monday that a weaker-than-expected crown along with
rapid wage growth had created room for more policy tightening
which may come as soon as the bank's next policy meeting on Aug
2. 
    The leu touched an 8-week high at 4.6365 against
the euro, firming in shallow trade.
    The Romanian central bank, like its Czech counterpart, is
expected to increase interest rates further.
    Liquidity conditions in leu markets have tightened in the
past months. The 3-month interbank ROBOR interest rate, bid at
3.08 percent, set a 4-1/2-month high.
    While Czech government debt yields rose and Hungarian yields
were steady, Poland's 10-year yield dropped 3 basis points to
3.15 percent.
    "The inflow of around 15 billion zloty is expected this week
from redemption and coupon payments, while at the (government's)
bond auction the offer should be not higher than 8 billion
zloty," BZ BWK analysts said in a note. 
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1021 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7810   25.8360    +0.21%    -0.93%
 crown      >                                       
 Hungary    <EURHUF=  326.7000  326.0900    -0.19%    -4.83%
 forint     >                                       
 Polish     <EURPLN=    4.3210    4.3238    +0.06%    -3.35%
 zloty      >                                       
 Romanian   <EURRON=    4.6400    4.6470    +0.15%    +0.86%
 leu        >                                       
 Croatian   <EURHRK=    7.3970    7.3995    +0.03%    +0.45%
 kuna       >                                       
 Serbian    <EURRSD=  117.9100  118.0000    +0.08%    +0.50%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1089.83  1087.730    +0.19%    +1.08%
                                       0            
 Budapest             35049.47  35141.03    -0.26%   -10.99%
 Warsaw                2227.29   2204.53    +1.03%    -9.50%
 Bucharest             7961.10   7949.39    +0.15%    +2.67%
 Ljubljana  <.SBITOP    883.98    885.37    -0.16%    +9.62%
            >                                       
 Zagreb                1815.62   1810.70    +0.27%    -1.48%
 Belgrade   <.BELEX1    725.06    726.53    -0.20%    -4.57%
            5>                                      
 Sofia                  635.97    633.41    +0.40%    -6.12%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.0500    0.0380   +166bps     +4bps
            R>                                      
   5-year   <CZ5YT=R    1.5200    0.0170   +174bps     +1bps
            R>                                      
   10-year  <CZ10YT=    2.1010    0.0140   +169bps     +1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6400   -0.0030   +225bps     +0bps
            R>                                      
   5-year   <PL5YT=R    2.5410    0.0020   +276bps     +0bps
            R>                                      
   10-year  <PL10YT=    3.1810   -0.0020   +277bps     -1bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.44      1.65      1.77      1.19
            <PRIBOR=                                
            >                                       
 Hungary                  0.46      0.67      0.89      0.25
                                                    
 Poland                   1.74      1.76      1.82      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 

 (Additional reporting by Luiza Ilie in Bucharest; Editing by
Kirsten Donovan)
  
 
 
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