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CEE MARKETS-Crown forwards firm more on cap exit speculation
October 19, 2016 / 10:20 AM / in a year

CEE MARKETS-Crown forwards firm more on cap exit speculation

* Crown, implied in 6-month forwards, jumps to 5-week high
    * Leu drifts further off 3-month lows after CHF bill vote

    By Sandor Peto
    BUDAPEST, Oct 19 (Reuters) - Czech crown forward prices
extended gains on Wednesday as investors bet on a surge in the
crown once the central bank exits from its cap.
    Central European assets mostly firmed mildly or were
treading water in slow trade, buoyed by the region's healthy
economic fundamentals, while global markets were lukewarm.
    Even though Czech interest rates are well below levels
elsewhere in the region, strong demand for the crown has forced
the Czech central bank to buy billions of euros in the past
months to keep the crown on the weaker side of 27 per euro.
    It imposed the cap in 2013 to fight a deflation threat.
    The Czech economy has rebounded since then and investor
speculation has grown over how soon the bank may let the crown
float freely and how much it could strengthen.
    Vice-Governor Mojmir Hampl reiterated on Tuesday that the
exit would definitely not happen before the second quarter of
2017. 
    Vladimir Tomsik, another vice-governor, said on Wednesday
that the cap policy was likely to end in mid-2017 and in a
transparent way, in a single move. 
    The crown exchange rate implied in six-month forwards
 jumped to a five-week high in overnight trade. It
firmed further after Tomsik's comments, to 26.82 per euro by
0849 GMT.
    Traders said gains continued from last week, when Governor
Jiri Rusnok signalled the central bank would not get nervous if
the currency firms by single percentage points after the exit.
    "There was a big difference in what the market had been
pricing before and what Rusnok said," a rates trader said.
    A Reuters poll earlier this month showed that analysts were
split over the likely timing of the exit from the cap and a
small majority of them expected it to happen in the next 12
months. 
    Raiffeisen analyst Daniela Milucka said Czech inflation
could rise very close to the central bank's (CNB) 2 percent
target next year, but loose monetary policy in the euro zone
would make the bank keep its own weak currency policy.
    "The ECB will likely extend its quantitative easing program
beyond March 2017. Thus we project the CNB will abandon the FX
commitment in the second half 2017," she said in a note.
    Regional currencies mostly firmed, including the leu
 which gained 0.1 percent to 4.498 after parliament
passed a bill on Tuesday on the conversion on Swiss franc
mortgages, removing a key risk factor.
    "...amid elevated risks for fiscal slippages (around
Romania's December elections), we continue to see near-term
pressures on EUR/RON tilted to the upside," ING analysts said in
a note.    
           CEE      SNAP   AT  1103         
           MARKETS  SHOT  CET         
                    CURRENCIES              
                    Late  Prev  Dail  Change
                    st    ious  y     
                    bid   clos  chan  in
                          e     ge    2016
 Czech     <EURCZK  27.0  27.0   +0.  -0.09%
 crown     =>        210   245   01%  
 Hungary   <EURHUF  306.  307.   +0.   2.66%
 forint    =>       5000  2150   23%  
 Polish    <EURPLN  4.32  4.31  -0.0  -1.44%
 zloty     =>         00    66    8%  
 Romanian  <EURRON  4.49  4.50   +0.   0.47%
 leu       =>         80    42   14%  
 Croatian  <EURHRK  7.50  7.50   +0.   1.76%
 kuna      =>         70    75   01%  
 Serbian   <EURRSD  123.  123.   +0.  -1.30%
 dinar     =>       0700  1700   08%  
 Note:     calcula  prev  clos  1800        
 daily     ted      ious  e at  CET   
 change    from                       
                    STOC                    
                    KS                
                    Late  Prev  Dail  Change
                    st    ious  y     
                          clos  chan  in
                          e     ge    2016
 Prague             916.  915.   +0.  -4.15%
                      67    33   15%  
 Budapest           2907  2901   +0.   +21.5
                    5.83  2.68   22%      5%
 Warsaw    <.WIG20  1725  1721   +0.  -7.19%
           >         .47   .21   25%  
 Buchares           6864  6844   +0.  -2.00%
 t                   .28   .47   29%  
 Ljubljan  <.SBITO  731.  728.   +0.   +5.13
 a         P>         83    26   49%       %
 Zagreb    <.CRBEX  1979  1982  -0.1   +17.1
           >         .19   .46    6%      4%
 Belgrade  <.BELEX  646.  645.   +0.   +0.44
           15>        94    71   19%       %
 Sofia     <.SOFIX  505.  504.   +0.   +9.70
           >          61    89   14%       %
                    BOND                    
                    S                 
                    Yiel  Yiel  Spre  Daily
                    d     d     ad    
                    (bid  chan  vs    change
                    )     ge    Bund  in
 Czech                                spread
 Republic                             
   2-year  <CZ2YT=  -0.6  -0.0  -003   -1bps
           RR>        89    07   bps  
   5-year  <CZ5YT=  -0.1  -0.0   +04   +0bps
           RR>        06    02  0bps  
           <CZ10YT  0.38     0   +03   +1bps
 10-year   =RR>        8        6bps  
 Poland                                     
   2-year  <PL2YT=  1.76  -0.0   +24   +0bps
           RR>         6    03  3bps  
   5-year  <PL5YT=  2.39  -0.0   +28   +0bps
           RR>         2    06  9bps  
           <PL10YT  2.97  -0.0   +29   -3bps
 10-year   =RR>        1    41  4bps  
           FORWARD  RATE  AGREEMENT         
                    3x6   6x9   9x12  3M
                                      interb
                                      ank
 Czech     <CZKFRA  0.28  0.25  0.23       0
 Rep       ><PRIBO                    
           R=>                        
 Hungary   <HUFFRA   0.7  0.68  0.68    0.81
           ><BUBOR                    
           =>                         
 Poland    <PLNFRA  1.72  1.71  1.74    1.72
           ><WIBOR           5        
           =>                         
 Note:     are for                          
 FRA       ask                        
 quotes    prices                     
 *******************************************
 *******************
 

 (Additional reporting by Luiza Ilie in Bucharest; Editing by
Catherine Evans)

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