February 27, 2018 / 3:57 PM / 20 days ago

CEE MARKETS-Forint hits 2018 lows, central bank keeps loose policy

    * Forint eases, Hungarian central bank maintains loose
    * Hungarian government bonds track core market yields higher

 (Recasts with Hungarian central bank statement, Fed Chair
    By Sandor Peto and Marcin Goclowski
    BUDAPEST, Feb 27 (Reuters) - The forint hit a
new low for 2018 against the euro on Tuesday after the Hungarian
central bank (NBH) kept interest rates at record lows as
expected and stuck to its easy policy stance.
    The NBH, Central Europe's most dovish central bank, said it
would keep monetary conditions loose for a prolonged period
using its unconventional policy measures.
    These include a long-term interest rate swap facility
launched this year to flatten the curve of market interest rates
and yields.
    The bank's statement coincided with a pledge from new U.S.
Federal Reserve Chairman Jerome Powell, in his first testimony
in Congress, to stick with gradual interest rate increases.
    While there were no surprises out of either Budapest or
Washington, the policy differential still caused some further
forint weakening, dealers said.
    It eased 0.1 percent to 314 against the euro by 1501 GMT.
The Czech crown weakened by 0.2 percent on what a
dealer said was some selling from London, while the zloty
 was steady.
    "I do not expect the forint to weaken past 315," one
Budapest-based dealer said.
    The Hungarian central bank also reiterated that its policy
of keeping long-term bond yields low was targeted at their
spread relative to core market yields rather than at any nominal
    Hungarian bond yields tracked an initial rise and later
retreat in yields in U.S. and German bonds.
    The curve became a bit steeper, with the 10-year yield
rising 3-4 basis points to 2.57 percent and the 3-year 2021/C
yield rising one basis point to 0.88 percent.
    The dollar firmed to a two-week high against the euro
. Its strength usually also puts pressure on currencies in
the European Union's emerging markets.
    "Regarding the euro, event risk is too big ahead of the
weekend, with the Italian elections and the SPD party vote on
the (planned) German government coalition looming," another
Budapest-based dealer said even before the NBH statement.
    In equities markets, Budapest's main stock index
bucked a modest rise in the region's main bourses, declining 0.8
percent, driven by a 3.9 percent fall in pharmaceutical firm
Richter after it issued a profit warning.
    In Warsaw, Pekao gained 3.5 percent, after Poland's
second-biggest bank reported a surge in fourth-quarter earnings
and said it would spend all its 2017 and 2018 profits on paying
    Polish banks have reported solid results for the fourth
quarter of 2017 so far as the accelerating economy and social
transfers boosted salaries and appetite for credit.
            CEE       SNAPSHOT   AT                         
            MARKETS             1601 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4220   25.3760    -0.18%    +0.47%
 crown      >                                       
 Hungary    <EURHUF=  314.0000  313.6300    -0.12%    -0.98%
 forint     >                                       
 Polish     <EURPLN=    4.1707    4.1708    +0.00%    +0.14%
 zloty      >                                       
 Romanian   <EURRON=    4.6575    4.6578    +0.01%    +0.48%
 leu        >                                       
 Croatian   <EURHRK=    7.4450    7.4535    +0.11%    -0.20%
 kuna       >                                       
 Serbian    <EURRSD=  117.9700  118.0600    +0.08%    +0.45%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1106.66  1101.470    +0.47%    +2.64%
 Budapest             38315.02  38620.84    -0.79%    -2.70%
 Warsaw                2417.55   2408.63    +0.37%    -1.77%
 Bucharest             8393.92   8379.01    +0.18%    +8.26%
 Ljubljana  <.SBITOP    810.62    809.46    +0.14%    +0.53%
 Zagreb                1821.82   1828.95    -0.39%    -1.14%
 Belgrade   <.BELEX1    752.24    753.76    -0.20%    -0.99%
 Sofia                  687.57    686.16    +0.21%    +1.49%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.6490    0.0550   +117bps     +4bps
   5-year   <CZ5YT=R    1.2670    0.0040   +122bps     -1bps
   10-year  <CZ10YT=    1.9210    0.0090   +125bps     -1bps
   2-year   <PL2YT=R    1.6640   -0.0010   +218bps     -1bps
   5-year   <PL5YT=R    2.6450   -0.0150   +260bps     -3bps
   10-year  <PL10YT=    3.3830   -0.0130   +271bps     -3bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.98      1.09      1.25      0.91
 Hungary                  0.08      0.10      0.19      0.02
 Poland                   1.75      1.77      1.86      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Jason Hovet in Prague
Editing by John Stonestreet and Hugh Lawson)
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