March 13, 2019 / 11:39 AM / 4 months ago

CORRECTED-CEE MARKETS-Forint hits 10-month high, leu rebounds despite weak output

 (Corrects headline to show forint hit 10-month high (rather
than low)
    * Forint crosses 315 vs euro for first time since May 2018
    * New central bank appointment sustains tightening forecasts
    * Leu rebounds from multi-week lows despite weak output data

    By Sandor Peto
    BUDAPEST, March 13 (Reuters) - The forint  hit
10-month highs on Wednesday amid expectations that Hungary's
central bank will start to tighten liquidity in markets late
this month to fight inflation.
    The currency crossed the 315 line against the euro for the
first time since May last year, and traded at 314.80 at 1055
    Central Europe's most liquid currency, the zloty
was stuck at 4.3 versus the euro, with the euro/dollar cross
 little changed.
    Investors held their breath as Britain's parliament voted
down late on Tuesday a plan for an orderly exit from the
European Union on March 29.
    If Britain leaves without a deal this would pose risks to
the region's foreign trade, but as markets are already aware of
this risk the forint's strengthening was natural, market
participants said.
    Prime Minister Viktor Orban's press chief confirmed media
reports on Wednesday that local UniCredit head Mihaly
Patai could become central bank deputy governor next month. 
    That prospect does not change expectations for gradual
monetary tightening as Patai is regarded as an ally of Governor
Gyorgy Matolcsy, market participants said.            
    "The forint may head towards 313.30-50 now," one
Budapest-based dealer said.
    The dealer also said the central bank might increase its
-0.15 percent overnight deposit rate at its March 26 meeting,
but it was more likely to only cut market liquidity via its fx
swap facility.
    Monetary tightening is likely to advance in "baby steps" as
the European Central Bank delays its own rate hikes, ING analyst
Peter Virovacz said.
    Romania's leu also firmed, by 0.2 percent to 4.763 versus
the euro, rebounding from multi-week lows against the euro
 and the zloty.
    Investors await government decisions by the end of this week
to amend new taxes imposed on sectors including banks, which
knocked Romanian assets down in the past few months.
    The leu rebounded from levels beyond 4.77 against the euro
despite fresh data showing a fall in Romania's industrial output
in January, even though net wages surged by over 18 percent in
annual terms.
    A surge in the trade deficit was already highlighted by
figures released on Tuesday.     
    ING analysts said in a morning note that even though the
Romanian central bank, which often intervened in the market in
the past to manage the leu, did not mop up increasing surplus
liquidity in markets this month, "a line in the sand
will be reinforced".
    In a separate note, ING said the fall in industrial output
was driven by a government cap on gas prices, while a slowdown
in euro zone export markets pointed to stagnation in Romanian
industrial output this year.
            CEE       SNAPSHOT   AT                         
            MARKETS             1155 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6700   25.6600    -0.04%    +0.14%
 crown      >                                       
 Hungary    <EURHUF=  314.8000  315.0500    +0.08%    +2.00%
 forint     >                                       
 Polish     <EURPLN=    4.2988    4.2970    -0.04%    -0.21%
 zloty      >                                       
 Romanian   <EURRON=    4.7630    4.7735    +0.22%    -2.29%
 leu        >                                       
 Croatian   <EURHRK=    7.4180    7.4165    -0.02%    -0.11%
 kuna       >                                       
 Serbian    <EURRSD=  118.0900  118.1000    +0.01%    +0.18%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1056.56  1060.360    -0.36%    +7.10%
 Budapest             40690.84  40612.50    +0.19%    +3.97%
 Warsaw                2306.25   2310.10    -0.17%    +1.30%
 Bucharest             7859.48   7905.62    -0.58%    +6.44%
 Ljubljana  <.SBITOP    870.27    870.21    +0.01%    +8.21%
 Zagreb                1769.52   1766.20    +0.19%    +1.18%
 Belgrade   <.BELEX1    698.52    698.28    +0.03%    -8.29%
 Sofia                  578.22    578.46    -0.04%    -2.73%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.8240    0.0190   +237bps     +2bps
   5-year   <CZ5YT=R    1.7890    0.0130   +217bps     +1bps
   10-year  <CZ10YT=    1.8930    0.0050   +182bps     -1bps
   2-year   <PL2YT=R    1.6090   -0.1050   +215bps    -10bps
   5-year   <PL5YT=R    2.2250    0.0030   +261bps     +0bps
   10-year  <PL10YT=    2.8750   -0.0050   +280bps     -2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.19      2.23      2.24      2.03
 Hungary                  0.38      0.59      0.78      0.14
 Poland                   1.75      1.74      1.74      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto. Editing by Jane Merriman)
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