October 10, 2019 / 1:21 PM / 2 months ago

UPDATE 1-CEE MARKETS-Czech crown drops with CPI surprise, leu dips after Romanian govt falls

 (Updates with Romania govt fall, crown losses, comment)
    PRAGUE, Oct 10 (Reuters) - The Czech crown had its biggest
fall in 2-1/2 months on Thursday after a sharp drop in consumer
prices dented rate hike expectations, while the leu eased when
Romanian lawmakers toppled the government in a vote, extending
political uncertainty.
    Other currencies stuck in recent ranges, with the Hungarian
forint gaining 0.2% to 333.50 to the euro and Poland's
zloty trading flat at 4.321.
    The crown was the biggest mover, losing almost
0.4% to 25.892 to the euro after data showed prices dropped 0.6%
month-on-month in September, pulling the headline year-on-year
rate down to 2.7% and away from the upper end of the central
bank's preferred range around its 2% target.
    With central Europe's economies still on solid ground, and
having not yet felt the full impact of a slowdown in Germany and
the euro zone, central Europe's rate setters have largely
shifted into wait-and-see mode even as the European Central Bank
eases policy.
    The Czech central bank board, though, debated rate hikes at
its Sept. 25 meeting before voting 5-2 to maintain the base rate
at 2.00%. The two dissenters pushed for a 25-basis-point
increase and Governor Jiri Rusnok said the debate would continue
at the next meeting in November.
    The crown's drop on Thursday put it at the weakest since the
day before that last meeting.
    Analysts said the bank's November meeting would again be
tight although most see stability ahead as external economic
risks would likely outweigh domestic price pressures.
    Goldman Sachs analysts said, despite their view of stable
rates ahead, September inflation data would not eliminate rate
hike chances.
    "Today’s downside surprise somewhat reduces those risks but,
given that the surprise was driven entirely by food prices, it
is less significant for monetary policy than the headline
decline suggests," the bank said.
    In Romania, the leu fell to its lowest level this
month at 4.754 to the euro, down 0.1%. 
    The leu has lost 2.1% so far in 2019, making it the
second-worst performing behind the Hungarian forint.
    It has dropped 0.7% since Prime Minister Viorica Dancila's
cabinet lost its majority in August after a coalition junior
ally, ALDE, quit over policy disagreements, making it
    On Thursday a majority of lawmakers backed a no-confidence
vote, opening the way for a transitional government until a
parliamentary election in late 2020.
    Raiffeisen said before the vote that the political crisis
would weigh on markets going forward but the "magnitude of such
reaction may be limited taking past examples of political crises
into account."
                                CEE MARKETS        SNAPSHOT    AT                        
                                                                 1434 CET                
                                                   Latest      Previous        Daily     Change
                                                   bid         close           change    in 2019
 EURCZK=    Czech crown                            25.8920     25.8005         -0.35%    -0.71%
 EURHUF=    Hungary forint                         333.2000    334.3150        +0.33%    -3.64%
 EURPLN=    Polish zloty                           4.3160      4.3215          +0.13%    -0.61%
 EURRON=    Romanian leu                           4.7540      4.7500          -0.08%    -2.10%
 EURHRK=    Croatian kuna                          7.4275      7.4270          -0.01%    -0.24%
 EURRSD=    Serbian dinar                          117.4300    117.4600        +0.03%    +0.74%
            Note: daily change  calculated from                                1800 CET  
                                                   Latest      Previous        Daily     Change
                                                               close           change    in 2019
 .PX        Prague                                 997.03      996.6200        +0.04%    +1.06%
 .BUX       Budapest                               39398.35    39544.62        -0.37%    +0.66%
 .WIG20     Warsaw                                 2115.53     2134.37         -0.88%    -7.08%
 .BETI      Bucharest                              9513.89     9514.48         -0.01%    +28.85%
 .SBITOP    Ljubljana                              870.11      864.92          +0.60%    +8.19%
 .CRBEX     Zagreb                                 1940.52     1929.28         +0.58%    +10.96%
 .BELEX15   Belgrade                               747.70      747.93          -0.03%    -1.84%
 .SOFIX     Sofia                                  557.47      559.26          -0.32%    -6.22%
                                                   Yield       Yield           Spread    Daily
                                                   (bid)       change          vs Bund   change in
            Czech Republic                                                               spread
 CZ2YT=RR   2-year                                 1.2540      -0.0110         +197bps   -4bps
 CZ5YT=RR   5-year                                 1.0220      -0.0370         +177bps   -8bps
 CZ10YT=RR  10-year                                1.1730      -0.0140         +169bps   -5bps
 PL2YT=RR   2-year                                 1.5010      -0.0020         +221bps   -3bps
 PL5YT=RR   5-year                                 1.6920      0.0270          +244bps   -1bps
 PL10YT=RR  10-year                                1.9220      0.0260          +244bps   -1bps
                                FORWARD            RATE        AGREEMENT                 
                                                   3x6         6x9             9x12      3M interbank
            Czech Rep                              2.22        2.17            2.10      2.17
            Hungary                                0.26        0.31            0.32      0.21
            Poland                                 1.73        1.72            1.67      1.72
            Note: FRA quotes    are for ask prices                                       

 (Reporting by Robert Muller and Jason Hovet in Prague and Luiza
Ilie and Timothy Heritage; Editing by Alexander Smith and Ken
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