December 18, 2019 / 10:53 AM / a month ago

CEE MARKETS-Currencies slip as central banks wait and see on rates

    By Joanna Plucinska
    WARSAW, Dec 18 (Reuters) - Currencies in Eastern Europe fell slightly on Wednesday, as
investors faced fresh Brexit fears ahead of a Czech central bank policy meeting where rates are
set to remain unchanged despite inflation concerns.  
    Caught between inflationary pressures at home and monetary easing in major Western
economies, Central European rate setters have adopted a wait-and-see policy with rates in the
region expected to remain on hold.
    The crown was down 0.10% at 25.47 to the euro at 1005 GMT, while the Hungarian
forint dropped to 330.65 to the euro. The zloty dropped 0.13% to 4.2665 to
the euro. 
    Stock markets also mostly fell in the region. 
    The Czech crown touched a 5-1/2 month high, then fell back, before a central bank policy
meeting likely to deliver unchanged rates despite an ongoing debate over whether further
tightening is needed to bring inflationary pressures in line.    
    "There are global factors, there is renewed uncertainty over Brexit... but in the Czech
Republic everyone is waiting for the MPC press conference," Radomir Jac, chief economist for
Generali Investments CEE, said. "Probably some of the market was over-heated with expectations
about a rate hike and now they are coming back to reality. If there was a rate hike it would be
a big surprise."
    With a Conservative win in Britain in last week's elections, Prime Minister Boris Johnson
has renewed fears about a no-deal Brexit in relation to post-January trade negotiations,
spooking currency markets. 
    Analysts in a Reuters poll see rates unchanged in the Czech Republic until the end of 2020
as the board balances a solid domestic economy with a weaker situation abroad.
    "Since inflation expectations for a one-year horizon are, despite recent increases, still
comfortably only slightly above the CNB (central bank) target of 2%, the central bank can afford
this relaxed attitude for the time being," Commerzbank said in a preview.
    Hungary's central bank left interest rates unchanged at 0.9% on Tuesday, as expected, and
maintained its loose policy stance, saying inflation risks have become balanced again as
recession fears subsided in the euro zone.
    "The Hungarian MPC expects inflation to accelerate further in the near-term, but asserts
that this will only be temporary. How temporary does it mean?," Tatha Ghose, an analyst at
Commerzbank said. 
    "The persistence of MNB's ultra-dovish stance in the face of clear and continued inflation
acceleration to above-target is likely to weigh down further on the forint in coming months."
    In Poland, corporate sector wages rose by an annual 5.3% in November, statistics data
showed, below forecasted expectations of 5.9% seen in a Reuters poll.
                           CEE MARKETS  SNAPSHOT     AT  1105 CET                    
                                        Latest      Previous       Daily    Change
                                        bid         close          change   in 2019
 EURCZK=     Czech crown                   25.4700        25.4455   -0.10%     +0.93%
 EURHUF=     Hungary                      330.6500       330.3700   -0.08%     -2.89%
 EURPLN=     Polish zloty                   4.2665         4.2609   -0.13%     +0.54%
 EURRON=     Romanian leu                   4.7797         4.7789   -0.02%     -2.63%
 EURHRK=     Croatian                       7.4485         7.4443   -0.06%     -0.52%
 EURRSD=     Serbian                      117.4000       117.4600   +0.05%     +0.77%
             Note: daily   calculated from                         1800              
             change                                                CET      
                                        Latest      Previous       Daily    Change
                                                    close          change   in 2019
 .PX         Prague                        1101.64      1101.1000   +0.05%    +11.66%
 .BUX        Budapest                     44960.92       45035.35   -0.17%    +14.88%
 .WIG20      Warsaw                        2120.28        2132.25   -0.56%     -6.87%
 .BETI       Bucharest                     9871.34        9887.91   -0.17%    +33.69%
 .SBITOP     Ljubljana                      920.73         922.65   -0.21%    +14.48%
 .CRBEX      Zagreb                        2012.94        2015.38   -0.12%    +15.10%
 .BELEX15    Belgrade                       781.18         769.42   +1.53%     +2.56%
 .SOFIX      Sofia                          543.92         541.34   +0.48%     -8.50%
                                        Yield       Yield          Spread   Daily
                                        (bid)       change         vs Bund  change in
             Czech                                                          spread
 CZ2YT=RR      2-year                       1.5340        -0.0150   +217bp      -2bps
 CZ5YT=RR      5-year                       1.2760        -0.0340   +182bp      -3bps
 CZ10YT=RR     10-year                      1.5660         0.0090   +185bp      +1bps
 PL2YT=RR      2-year                       1.4470         0.0090   +208bp      +1bps
 PL5YT=RR      5-year                       1.7640        -0.0010   +231bp      +0bps
 PL10YT=RR     10-year                      2.0340         0.0070   +232bp      +0bps
                           FORWARD      RATE        AGREEMENT                        
                                        3x6         6x9            9x12     3M
             Czech Rep             <PR        2.25           2.26     2.22       2.18
             Hungary               <BU        0.27           0.31     0.36       0.16
             Poland                <WI        1.74           1.73     1.71       1.70
             Note: FRA     are for ask prices                                        

 (Reporting by Joanna Plucinska and Alan Charlish in Warsaw, Krisztina Than in Budapest and
Jason Hovet in Prague; editing by Nick Macfie)
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