October 24, 2017 / 8:54 AM / a year ago

CEE MARKETS-Forint weakens on policy easing risk as central bank meets

    * Hungarian central bank meets, unlikely to change rates
    * Some market participants see policy easing risk, forint

    By Sandor Peto
    BUDAPEST, Oct 24 (Reuters) - The forint led an easing of
Central European currencies against the euro on Tuesday on some
expectations that the Hungarian central bank (NBH) may cut its
overnight deposit rate further at its meeting later in the day.
    Hungarian markets reopened after Monday's national holiday.
    "There are some outlier forecasts that there will be a
further rate cut," one Budapest-based trader said.
    "Also, Moody's did not improve the (Hungarian debt rating)
outlook on Friday despite some expectations."
    The forint and the zloty eased 0.2-0.3
percent against the euro by 0839 GMT.
    Only 1 out of 12 analysts projected a cut in the Hungarian
overnight deposit rate in a Reuters poll last week, and analysts
in the survey agreed that the base rate would not change either.
    The base rate, which is also the 3-month deposit rate, has
lost most of its significance this year as the NBH has limited
the funds that commercial banks can keep in the deposits.
    Liquidity management through fx swap tenders has become more
significant. A surprise cut in the overnight deposit rate
delivered last month has pushed interbank interest rates lower.
    Most analysts said the NBH would not announce further
easing, waiting for the European Central Bank's Thursday
    A shift towards more hawkish ECB policy could weaken Central
European currencies and bonds, making them relatively less
attractive and pointing to increased inflation risks in Europe.
     "We expect the EURPLN rate to decline towards the technical
support of 4.20 (from 4.2355) in the rest of the week. We hope
that a dovish statement from the ECB will strengthen the flow of
capital into CEE markets," ING bank Slaski said in a note.
    The Czech central bank (CNB), worried over a rise in
inflation, already lifted its rates in August.
    The crown eased 0.1 percent to 25.675 against the
euro on Tuesday.
    Expectations for further CNB hikes keep it close to the
4-year highs reached on Monday, setting aside any immediate
concern that billionaire Andrej Babis' ANO party, which won last
weekend's election, may run into trouble in its search for
coalition partners.
    The Romanian leu eased slightly, but stayed on the
firm side of 4.6 against the euro, with market participants
convinced "of the central bank's determination to curb leu
weakening beyond 4.60/euro," ING analysts said in a note.
    In stock markets, the shares of O2 firmed 3.3
percent, after the Czech telecoms firm reported higher than
expected third-quarter profits. 
    State-controlled Polish banks Pekao and Alior
 shed 3.6 and 2.7 percent, respectively, after saying
that they were considering cooperation or a merger.
               CEE MARKETS  SNAPSH   AT  1039 CET         
                            Latest  Previo  Daily   Change
                            bid     close   change  in
 Czech crown                25.663  25.646  -0.07%   5.24%
                                 0       0          
 Hungary                    308.50  308.02  -0.16%   0.10%
 forint                         00      00          
 Polish zloty               4.2355  4.2231  -0.29%   3.98%
 Romanian leu               4.5985  4.5967  -0.04%  -1.38%
 Croatian                   7.5085  7.5065  -0.03%   0.62%
 Serbian                    119.38  119.27  -0.09%   3.33%
 dinar                          00      00          
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            Latest  Previo  Daily   Change
                                    close   change  in
 Prague                     1051.7  1048.2   +0.33   +14.1
                                 4       5       %      2%
 Budapest                   39085.  39132.  -0.12%   +22.1
                                10      62              3%
 Warsaw                     2463.5  2473.4  -0.40%   +26.4
                                 0       2              7%
 Bucharest                  7893.7  7900.5  -0.09%   +11.4
                                 7       8              1%
 Ljubljana                  803.35  803.93  -0.07%   +11.9
 Zagreb                     1845.8  1849.4  -0.19%  -7.47%
                                 5       4          
 Belgrade                   728.46  728.25   +0.03   +1.55
                                                 %       %
 Sofia                      665.72  667.48  -0.26%   +13.5
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
   2-year                    0.332   0.106   +104b   +9bps
   5-year                    0.746       0   +101b   -3bps
   10-year                   1.635  -0.046   +117b   -7bps
   2-year                    1.685   0.011   +239b   -1bps
   5-year                    2.688   0.012   +295b   -1bps
   10-year                   3.383   0.008   +292b   -2bps
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
 Czech Rep             <PR    0.85    0.99    1.12       0
 Hungary               <BU    0.07     0.1    0.15    0.03
 Poland                <WI    1.79    1.85   1.902    1.73
 Note: FRA     are for ask                                
 quotes        prices                               
 (Additional reporting by Radu Marinas in Bucharest and Marcin
Goettig in Warsaw Editing by Jeremy Gaunt)
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