June 27, 2018 / 2:50 PM / 10 months ago

CORRECTED-CEE MARKETS-Rate hike buoys Czech crown, forint touches record low

 (Clarifies in penultimate paragraph of Thursday's story that
CEZ shares fell due to ex-dividend trade rather than due to
Bulgarian asset sale)
    * Crown firms ahead of rate hike, then retreats
    * Czech cbank chief says hard to say if further hike needed
    * Forint hits record low vs both euro and crown

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, June 27 (Reuters) - The crown hit record
highs against the falling forint as the Czech central bank (CNB)
increased interest rates again on Wednesday, earlier than some
market participants had expected.
    More than half of analysts in a Reuters poll had expected
the hike to come only in August, when the CNB will also publish
new inflation forecasts.
    Wednesday's rate hike was still not a huge surprise after a
pick-up in inflation across Central Europe, partly fuelled by a
weakening of its currencies in the past two months due to risk
aversion as the dollar and U.S. debt yields rallied.
    The crown joined the decline, even though the CNB
started hiking its rates last August, while Hungary and Poland -
where inflation targets are above the Czech Republic's 2 percent
- have retained a loose monetary policy.    
    Shedding slightly more than 1 percent against the euro so
far this year, the crown has still comfortably outperformed the
forint, which has weakened almost 5 percent and the
zloty, which has eased near 4 percent.
    The crown is still weaker than the 25.2 level predicted by
the CNB for the second quarter.
    Anticipation of Wednesday's rate hike, the fourth one in the
current cycle, boosted the crown to a two-week high of 25.69
against the euro in early trade. 
    It had retreated by 1355 GMT, trading at 25.855, still
firmer by a quarter of a percent.
    It gave up some ground after the CNB's rate decision and its
news conference, where Governor Jiri Rusnok said it was
difficult to say what further rate hikes may be needed.
    The CNB would need one more rate hike this year and a
further 75 basis point rise next year, Capital Economics
analysts said in a note.
    "This would be slightly more tightening than is priced into
financial markets," they added.  
    The forint, meanwhile, shed 0.4 percent against
the euro, to trade at 326.9, off record lows touched in early
    The zloty eased 0.2 percent, while the leu
 gained 0.2 percent. Romania's central bank has also
started to raise interest rates.
    The crown set a record high against the forint
during the session, and hit a 5-year high against the zloty
    Hungary's central bank last week shifted to a less dovish
rhetoric, saying that loose monetary conditions were unlikely to
prevail until the end of its policy horizon of 5-8 quarters.
    But investors continued to sell the forint.
    Hungarian government bond yields, however, did not rise
further after a rally in the past months, and even shed a few
basis points, with the 10-year paper fixed at 3.54 percent. 
    While regional stock markets were mixed, Prague's main stock
index shed one percent.
    The fall was driven by a 6 percent decline in the stock of
energy group CEZ which started trading without a
    The stock of Czech bank Komercni rose 0.8 percent.
            CEE       SNAPSHOT   AT                         
            MARKETS             1555 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8550   25.9200    +0.25%    -1.21%
 crown      >                                       
 Hungary    <EURHUF=  326.9000  325.6500    -0.38%    -4.89%
 forint     >                                       
 Polish     <EURPLN=    4.3400    4.3330    -0.16%    -3.77%
 zloty      >                                       
 Romanian   <EURRON=    4.6525    4.6620    +0.20%    +0.58%
 leu        >                                       
 Croatian   <EURHRK=    7.3800    7.3815    +0.02%    +0.68%
 kuna       >                                       
 Serbian    <EURRSD=  117.9000  118.0000    +0.08%    +0.51%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1051.13  1061.490    -0.98%    -2.51%
 Budapest             35569.26  35352.03    +0.61%    -9.67%
 Warsaw                2142.52   2153.40    -0.51%   -12.95%
 Bucharest             7930.69   7965.38    -0.44%    +2.28%
 Ljubljana  <.SBITOP    883.79    883.32    +0.05%    +9.60%
 Zagreb                1812.65   1814.03    -0.08%    -1.64%
 Belgrade   <.BELEX1    730.53    730.23    +0.04%    -3.85%
 Sofia                  631.71    631.87    -0.03%    -6.75%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.0700   -0.0210   +177bps     -2bps
   5-year   <CZ5YT=R    1.5970   -0.0120   +189bps     -1bps
   10-year  <CZ10YT=    2.1970   -0.0010   +187bps     +0bps
   2-year   <PL2YT=R    1.6370   -0.0020   +233bps     +0bps
   5-year   <PL5YT=R    2.5390   -0.0030   +283bps     +0bps
   10-year  <PL10YT=    3.1990   -0.0520   +287bps     -5bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.17      1.29      1.43      0.93
 Hungary                  0.60      0.76      0.95      0.26
 Poland                   1.75      1.77      1.81      1.70
 Note: FRA  are for ask prices                              

 (Editing by Gareth Jones)
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