August 21, 2018 / 2:45 PM / 9 months ago

CEE MARKETS-Forint leads currency gains, central bank holds fire

    * CEE currencies firm as Trump comments push back dollar
    * Hungary's central bank leaves interest rates unchanged
    * Warsaw, Budapest lead stocks recovery
    * Hungarian bonds firm, Polish bonds ease mildly

 (Recasts with Hungarian central bank decisions, analyst
    By Sandor Peto
    BUDAPEST, Aug 21 (Reuters) - A weaker dollar helped Central
European currencies including the forint strengthen on Tuesday
even as the Hungarian central bank (NBH) kept its record low
interest rates on hold at its meeting.
    Flows into the safer greenback have often weakened the
region's main currencies against the euro since April.
    But the dollar eased on Tuesday against a basket of
currencies and against the euro after U.S. President
Donald Trump criticised the Federal Reserve's interest rate
tightening policy. 
    The forint and the zloty firmed 0.2 percent
against the euro by 1351 GMT, with the Hungarian unit trading at
323.45. The leu gained 0.1 percent , while the Czech
crown shed 0.1 percent.
    Hungary's central bank kept both its 0.9 percent base rate
and -0.15 percent overnight deposit rate unchanged at its
meeting, in line with the unanimous forecast of analysts in a
Reuters poll.
    It made no change to its unconventional swap tools either,
which have injected extra liquidity into interbank markets to
keep monetary conditions loose.
    "We believe that domestic interbank interest rates will
gradually get adjusted (rise) to the central bank base rate next
year, and the first base rate increase can come in 2020," Erste
analyst Orsolya Nyeste said in a note.
    Some analysts expect the first rate hike to come next year.

    The forint could move in the 318-325 range in the next days,
and between 318-330 later, Equilor brokerage analysts said in a
    Hungarian government bonds firmed, with the yield on 10-year
papers dropping 7 basis points from Friday as the market
reopened after a national holiday on Monday.
    It fell to 3.41 percent, bucking a rise in corresponding
yields in core markets and in the region.
    Its spread over its Polish peer, which traded at
3.12 percent dropped below 30 basis points.    
    After a widening earlier this month, the spread can narrow
to about 15 basis points, assuming no policy slippages and no
bad inflation surprises in Hungary, Raiffeisen analysts said in
a morning note.
    "The positive effect of the low supply of bonds at the
(Polish) auctions (this year) seems to be counterbalanced by the
continuing uncertainty about the situation in Turkey," BZ WBK
analysts said.
    Uncertainty over Turkey poses risks to regional equities,
too, even though Trump's call for less Fed rate tightening helps
emerging markets now, analysts said. 
    Warsaw's bluechip index gained 2.2 percent, while
Budapest's index rose 1.4 percent, mainly driven by an
almost 5 percent jump in the price of oil group MOL.
    "I would not read much into that as the Budapest bourse's
blue chips have been very volatile recently," said Equilor
analyst Noemi Holecz.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1551 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7750   25.7450    -0.12%    -0.90%
 crown      >                                       
 Hungary    <EURHUF=  323.4500  323.9500    +0.15%    -3.88%
 forint     >                                       
 Polish     <EURPLN=    4.3000    4.3095    +0.22%    -2.88%
 zloty      >                                       
 Romanian   <EURRON=    4.6420    4.6470    +0.11%    +0.81%
 leu        >                                       
 Croatian   <EURHRK=    7.4210    7.4175    -0.05%    +0.13%
 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                1069.19  1061.960    +0.68%    -0.83%
 Budapest             36936.04  36436.96    +1.37%    -6.20%
 Warsaw                2285.60   2236.08    +2.21%    -7.14%
 Bucharest             8202.45   8234.80    -0.39%    +5.79%
 Ljubljana  <.SBITOP    873.97    871.84    +0.24%    +8.38%
 Zagreb                1830.64   1822.60    +0.44%    -0.66%
 Belgrade   <.BELEX1    731.47    731.62    -0.02%    -3.73%
 Sofia                  632.95    634.14    -0.19%    -6.57%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.2960    0.0250   +191bps     +1bps
   5-year   <CZ5YT=R    1.6910    0.0130   +199bps     -2bps
   10-year  <CZ10YT=    2.1940    0.0130   +186bps     -1bps
   2-year   <PL2YT=R    1.6200    0.0070   +224bps     -1bps
   5-year   <PL5YT=R    2.4880    0.0310   +279bps     +0bps
   10-year  <PL10YT=    3.1540    0.0340   +282bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.79      1.93      2.03      1.48
 Hungary                  0.51      0.74      0.95      0.19
 Poland                   1.76      1.79      1.81      1.71
 Note: FRA  are for ask prices                              

 (Additional reporting by Anna Koper in Warsaw;
Editing by Alison Williams)
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