November 7, 2017 / 4:18 PM / a year ago

CEE MARKETS-Leu falls as central bank seen letting it move more

    * Leu eases through 4.6 line vs euro on central bank
    * Comments interpreted as increased leniency to fx movements
    * Polish bank stocks surge on Q3 results, rate hike hopes
    * Small-cap stocks put Budapest index on rollercoaster

 (Recasts with Romanian central bank decision and comments, kuna
and dinar fall)
    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, Nov 7 (Reuters) - The leu hit its
weakest level against the euro since 2012 on Tuesday after the
market interpreted comments by the Romanian central bank
governor as favouring a looser grip on the exchange rate.
    The currency had already eased slightly before the central
bank's meeting as some investors expected the bank (NBR) to
deliver a relatively dovish message.
    The NBR kept its main interest rate steady at 1.75 percent
as expected and narrowed the interest rate corridor around it.
    The bank said later that it would shift to "firm" instead of
"adequate" liquidity management, which means it wants to keep
market interest rates closer to the main rate, market
participants said.
    Together with other comments about more exchange rate
flexibility, this suggests "that the central bank is shifting
towards more interest rate control instead of exchange rate
control", Erste economist Horia Braun-Erdei said in a note.
    The leu plunged almost a percent after the comments, made by
 NBR Governor Mugur Isarescu at a news conference.
    It pierced the 4.6 line against the euro, a level many
market participants believed the NBR had been defending.
    At 1525 GMT the leu traded at 4.6215, down two-thirds of a
percent from Monday. 
    The upside for the euro is limited, though, as Romanian
government spending is expected to jump late this year, boosting
leu liquidity in markets, Braun-Erdei said.
    "The NBR will welcome the occasion to sell some EUR and thus
absorb some of that excess in its pursuit of 'firm
liquidity management'," she added.
    Elsewhere in Central Europe, the Polish central bank is also
seen holding fire at its meeting on Wednesday, but it is
expected to start to increase interest rates by late next year.
    Expectations for higher rates contributed to a rally in
Polish banking shares, helping push Warsaw's blue-chip share
index to its highest level since December 2013.
    "It seems that banks will now be the bourse's engine. This
might result from the expectations of the interest rate hike and
banks' rising margins," a Warsaw-based broker said. 
    Budapest's main equities index briefly hit a record
high, boosted by a short-lived rally of small-cap firms
controlled by Lorinc Meszaros, a tycoon close to the government.
    Croatia's kuna set a 10-month low against the
euro, partly because companies need euros for provisions due to
a crisis at food group Agrokor           .
    Serbia's dinar fell a quarter of a percent to
118.8 against the euro, after the IMF cut its economic forecast
for Serbia and urged reforms.   
               CEE MARKETS  SNAPSH   AT  1625 CET         
                            Latest  Previo  Daily   Change
                            bid     close   change  in
 Czech crown                25.567  25.563  -0.01%   5.63%
                                 0       5          
 Hungary                    311.75  311.38  -0.12%  -0.94%
 forint                         00      50          
 Polish zloty               4.2445  4.2414  -0.07%   3.76%
 Romanian leu               4.6215  4.5913  -0.65%  -1.87%
 Croatian                   7.5400  7.5378  -0.03%   0.20%
 Serbian                    118.80  118.52  -0.24%   3.83%
 dinar                          00      00          
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            Latest  Previo  Daily   Change
                                    close   change  in
 Prague                     1055.7  1055.5   +0.02   +14.5
                                 3       6       %      5%
 Budapest                   39934.  40115.  -0.45%   +24.7
                                80      77              8%
 Warsaw                     2542.8  2515.3   +1.10   +30.5
                                 9       4       %      4%
 Bucharest                  7746.0  7784.0  -0.49%   +9.33
                                 1       5               %
 Ljubljana                  784.85  788.85  -0.51%   +9.37
 Zagreb                     1816.5  1815.7   +0.05  -8.94%
                                 7       0       %  
 Belgrade                   729.68  729.65   +0.00   +1.72
                                                 %       %
 Sofia                      674.34  672.79   +0.23   +14.9
                                                 %      9%
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
   2-year                    0.313   0.008   +107b   +0bps
   5-year                    0.748    0.03   +112b   +3bps
   10-year                   1.598       0   +126b   +0bps
   2-year                     1.62  -0.012   +238b   -2bps
   5-year                    2.649  -0.026   +302b   -2bps
   10-year                   3.432  -0.013   +309b   -2bps
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
 Czech Rep             <PR    0.89    0.99    1.11       0
 Hungary               <BU    0.08    0.07     0.1    0.03
 Poland                <WI   1.766   1.829   1.924    1.73
 Note: FRA     are for ask                                
 quotes        prices                               
 (Additional reporting by Radu Marinas in   Bucharest/Bartosz
Chmielewski and Anna Koper in Warsaw/Igor Ilic in Zagreb;
Editing by Matthew Mpoke Bigg and Susan Fenton)
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