January 8, 2018 / 9:35 AM / 2 months ago

CEE MARKETS-Leu firms, Romanian central bank may hike rates

    * Romanian central bank may start to raise rates, analysts
    * Overheating fear may hit bonds if there is no rate
    * Zloty eases, central bank unlikely to encourage rate hike

    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, Jan 8 (Reuters) - The leu firmed and
Romanian government bonds trod water on Monday ahead of a
meeting of the country's central bank (NBR) where it may start
to increase interest rates from record low levels.
    The leu had already reached a 2-month high against
the euro in the previous session. Trading at 4.636 at 0826 GMT,
it was off that high, but still slightly firmer from Friday.
    A hike in the 1.75 percent benchmark interest rate would
make the NBR the second central bank in the European Union's
eastern nations to start to lift rates from record low levels,
after two hikes by the Czech central bank (CNB) since August.
    While the CNB has the lowest inflation target in the region
at 2 percent, markets have been gripped by overheating concerns
in Romania where a surge in wages has helped the economy to grow
by a stellar annual 8.8 percent in the third quarter of last
    Between August and November, Romania's annual inflation rate
surged two percentage points to 3.2 percent.
    In a Reuters poll, five analysts expected the bank to hold
fire, while four projected a quarter point hike. 
    "There are concerns that inflation may rise above 5 percent
by the summer and everybody is looking at the central bank, what
they will do," one fixed income trader said.
    "This caused the recent swings in bond yields there... and
worries could boost yields if the central bank does not deliver
a hike," the trader added.
    Romanian 2027-expiry bonds traded at a yield of 4.3 percent,
flat from Friday.
    Elsewhere in the region, the zloty eased 0.2
percent to 4.159, but remained near Friday's six-and-a-half year
highs of 4.143. 
    The region's currencies generally started the year
strengthening, lifted by a rise in risk appetite in global
markets and the prospect of healthy economic growth in Central
    The Polish central bank is unlikely to encourage
expectations for interest rate hikes at its meeting on
    "The zloty will probably not be helped by comments after the
MPC (central bank) meeting," ING analysts said in a note, adding
that correction could weaken the zloty to 4.2 in the next couple
of weeks, even though a big easing is unlikely.  
    The forint also eased slightly.
    New Hungarian data showed that industrial output grew  3.4
percent in annual terms in November, half of analysts' forecast,
but retail sales grew at a robust 6.4 percent rate.
    Czech output growth, at 8.5 percent, exceeded expectations,
similar to a 11.7 billion crown trade surplus in November.
    The crown firmed 0.1 percent.
            CEE       SNAPSHOT   AT                         
            MARKETS             0926 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5360   25.5485    +0.05%    +0.02%
 crown      >                                       
 Hungary    <EURHUF=  308.5700  308.5050    -0.02%    +0.76%
 forint     >                                       
 Polish     <EURPLN=    4.1590    4.1552    -0.09%    +0.42%
 zloty      >                                       
 Romanian   <EURRON=    4.6360    4.6367    +0.02%    +0.94%
 leu        >                                       
 Croatian   <EURHRK=    7.4350    7.4375    +0.03%    -0.06%
 kuna       >                                       
 Serbian    <EURRSD=  118.3500  118.7400    +0.33%    +0.13%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1108.07  1105.320    +0.25%    +2.77%
 Budapest             39886.60  39995.16    -0.27%    +1.29%
 Warsaw                2530.13   2529.55    +0.02%    +2.80%
 Bucharest             7995.08   7985.82    +0.12%    +3.11%
 Ljubljana  <.SBITOP    802.25    802.25    +0.00%    -0.51%
 Zagreb                1849.71   1849.71    +0.00%    +0.37%
 Belgrade   <.BELEX1    753.03    753.03    +0.00%    -0.89%
 Sofia                  686.57    692.24    -0.82%    +1.35%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.6420    0.0310   +125bps     +3bps
   5-year   <CZ5YT=R    0.9410    0.0460   +115bps     +4bps
   10-year  <CZ10YT=    1.6570    0.0100   +121bps     +1bps
   2-year   <PL2YT=R    1.6220    0.0150   +223bps     +1bps
   5-year   <PL5YT=R    2.5080    0.0130   +271bps     +1bps
   10-year  <PL10YT=    3.2260    0.0020   +278bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.05      1.22      1.36      0.00
 Hungary                  0.03      0.06      0.10      0.03
 Poland                   1.75      1.79      1.89      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Marcin Goclowski in Warsaw; Editing by
Keith Weir)
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