April 16, 2018 / 2:20 PM / a year ago

CEE MARKETS-Leu and short-term Romanian rates jump on central bank tender

    * Romania tightens liquidity via surprise deposit tender
    * Short-term Romanian interest rates at multi-month highs
    * Rates could rise further in May -analyst
    * CEE looks less risky than other regions -analyst
    * S&P surprised by raising Poland's rating outlook to

    By Sandor Peto and Radu-Sorin Marinas
    BUDAPEST/BUCHAREST, April 16 (Reuters) - The leu led a
firming of Central European currencies and short-term Romanian
market interest rates jumped to multi-month highs on Monday
after the central bank (NBR) held a surprise deposit tender.
    The tender, which follows a jump in Romania's March annual
inflation to a five-year high of 5 percent, channelled 18.7
billion leu off the interbank market at a 2.25 percent interest
    The facility, unused since 2011, effectively provides 
monetary tightening through a liquidity cut, analysts said.
    The NBR also said in the minutes of its April 4 meeting that
the annual inflation rate could rise marginally and then level
off above the variation band of its target over several months.
    Short-term interbank interest rates jumped after the tender,
with the overnight deposit rate bid at 1.55 percent, a
four-month high.
    The yield on two-year benchmark bonds rose 30 basis points
to 2.78 percent.
    The NBR's measure to tighten market liquidity is probably a
precursor rather than a replacement of further benchmark rate
hikes, said Erste analyst Horia Braun-Erdei.
    "For the May monetary policy meeting, the odds between a
policy hike and 'no hike' are now more evenly balanced, given
the effective and significant tightening implemented today," he
said in a note. "We marginally still favour a hike scenario." 
    The NBR's tightening measure may have caught the finance
ministry off guard, he added. It rejected all bids at its own
tenders of one-year Treasury bills and 10-year bonds.
    The leu firmed 0.3 percent to 4.6496 against the
euro by 1336 GMT.
    The Czech crown, the forint and the
zloty also firmed, all hitting their highest in
between two and three months, indicating that the leu
strengthening was part of a regional trend.
    The crown has also been helped by expectations of
a further increase in the Czech central bank rate, while the
Hungarian and Polish central banks have signalled that they
could keep rates at record lows for years.
    Investors have turned to the region's currency markets as a
safe haven amid recent jitters in global markets, particularly
in emerging markets such as Russia and Turkey, ING analyst Peter
Virovacz said.
    "Huge excitements, like trade war fears, the Syrian conflict
or the Russian story (of sanctions from the United States) have
all left the CEE region alone," he said.
    After rising in recent weeks, Polish and Hungarian
government bond prices retreated on profit-taking.
    Poland's 10-year yield rose 6 basis points to 3.079 percent,
even though Standard & Poor's surprised late on Friday by
changing the outlook on Poland's credit rating to positive from
            CEE       SNAPSHOT   AT                         
            MARKETS             1536 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.2620   25.3050    +0.17%    +1.11%
 crown      >                                       
 Hungary    <EURHUF=  310.2300  310.8000    +0.18%    +0.22%
 forint     >                                       
 Polish     <EURPLN=    4.1589    4.1664    +0.18%    +0.42%
 zloty      >                                       
 Romanian   <EURRON=    4.6496    4.6635    +0.30%    +0.65%
 leu        >                                       
 Croatian   <EURHRK=    7.4120    7.4155    +0.05%    +0.25%
 kuna       >                                       
 Serbian    <EURRSD=  117.9400  118.1500    +0.18%    +0.47%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1139.19  1134.270    +0.43%    +5.66%
 Budapest             38231.88  38351.65    -0.31%    -2.91%
 Warsaw                2296.98   2310.32    -0.58%    -6.67%
 Bucharest             8882.15   8871.04    +0.13%   +14.55%
 Ljubljana  <.SBITOP    838.31    836.75    +0.19%    +3.96%
 Zagreb                1775.82   1782.45    -0.37%    -3.64%
 Belgrade   <.BELEX1    741.22    739.45    +0.24%    -2.45%
 Sofia                  661.91    663.22    -0.20%    -2.29%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.7930    0.0930   +136bps    +10bps
   5-year   <CZ5YT=R    1.1910   -0.0130   +127bps     -2bps
   10-year  <CZ10YT=    1.8120    0.0260   +128bps     +1bps
   2-year   <PL2YT=R    1.5550    0.0140   +213bps     +2bps
   5-year   <PL5YT=R    0.0000    0.0750   +008bps     +7bps
   10-year  <PL10YT=    3.0920    0.0470   +256bps     +3bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.95      1.05      1.19      0.90
 Hungary                  0.57      0.09      0.15      0.03
 Poland                   1.72      1.74      1.78      1.70
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Gareth Jones and David Goodman)
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