November 9, 2018 / 11:31 AM / 7 months ago

CEE MARKETS-Crown hits 4-month low as CNB sees no urgent need to hike rates

    * Fed signal of Dec rate hike weighs on CEE fx via dollar
    * Crown extends loss after cbank head suggests no rate hike
in Dec
    * Profit taking on OTP shares on earnings report drives .BUX

    By Sandor Peto
    BUDAPEST, Nov 9 (Reuters) - The Czech crown touched a
4-month low against the euro on Friday after central bank (CNB)
governor Jiri Rusnok said the bank had no urgency to keep
increasing interest rates.
    Central European currencies and equities were under pressure
anyway as buyers turned to the dollar after the Federal
Reserve indicated on Thursday that another rate increase was
likely in December.
    Earlier this week the dollar was sold, buoying the region's
currencies, as a strengthening of the opposition Democrats at
Tuesday's midterm elections in the United States caused
expectations for less fiscal stimulus and rate hikes. 
    The region's most liquid unit, the zloty led the
weakening on Friday, shedding 0.3 percent to trade at 4.2885 at
1025 GMT, retreating from a 6-week high.
    The crown was weaker by 0.2 percent at 25.927, off
a 4-month low set at 25.97 after Rusnok's comments.
    Rusnok said the CNB can easily wait until its first meeting
next year before deciding on another rate hike.
    Right after the CNB delivered its fourth straight rate hike
on Nov. 1 to fight inflation, Rusnok said the bank could
increase rates again in December but only if global markets
pushed the crown to weaker-than-expected levels.
    The minutes of the meeting published on Friday said rate
setters had a consensus that real interest rates should not be
negative and that the main uncertainty was the crown exchange
    Statistics figures released on Friday showed that annual
inflation unexpectedly slowed to 2.2 percent in October from 2.3
percent in September, but remained above the CNB's 2 percent
    "If koruna (the crown) starts appreciating again, we expect
the CNB to deliver only one additional hike approx. in the
middle of the next year, as the appreciating koruna should
tighten monetary conditions sufficiently," Erste analyst Jiri
Polansky said in a note.
    "However, if koruna remains weak, the CNB will hike three
times in 2019, in our view," he added.
     The sour global mood equally weakened the crown and the
forint, which retreated from a 3-month high reached on
Thursday, even though the Hungarian central bank is seen
retaining its loose policy stance despite a rise in inflation in
October to near the top of its 2-4 percent target.
     A sell-off in global stock markets after the Fed's comments
and weak Chinese data also weighed on some regional equities.
    Budapest's main stock index shed 0.7 percent, driven
by a 2 percent fall in the shares of OTP, the region's biggest
    Expectations for a rise in the bank's third-quarter earnings
boosted the stock to a 6-month high on Thursday, and investors
took profit after the earnings report was published on Friday.
            CEE       SNAPSHOT   AT                         
            MARKETS             1125 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9270   25.8780    -0.19%    -1.48%
 crown      >                                       
 Hungary    <EURHUF=  321.4600  320.9000    -0.17%    -3.28%
 forint     >                                       
 Polish     <EURPLN=    4.2885    4.2770    -0.27%    -2.62%
 zloty      >                                       
 Romanian   <EURRON=    4.6575    4.6570    -0.01%    +0.48%
 leu        >                                       
 Croatian   <EURHRK=    7.4275    7.4303    +0.04%    +0.04%
 kuna       >                                       
 Serbian    <EURRSD=  118.3100  118.3600    +0.04%    +0.16%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1087.74  1085.950    +0.16%    +0.89%
 Budapest             38427.45  38713.45    -0.74%    -2.41%
 Warsaw                2242.34   2262.84    -0.91%    -8.89%
 Bucharest             8612.39   8571.53    +0.48%   +11.07%
 Ljubljana  <.SBITOP    808.10    812.93    -0.59%    +0.21%
 Zagreb                1787.55   1785.70    +0.10%    -3.00%
 Belgrade   <.BELEX1    745.31    749.36    -0.54%    -1.91%
 Sofia                  594.77    595.00    -0.04%   -12.20%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.6240    0.1270   +224bps    +13bps
   5-year   <CZ5YT=R    1.8360    0.0100   +200bps     +3bps
   10-year  <CZ10YT=    2.1110    0.0040   +168bps     +3bps
   2-year   <PL2YT=R    1.5870    0.0060   +221bps     +1bps
   5-year   <PL5YT=R    2.5030    0.0070   +267bps     +3bps
   10-year  <PL10YT=    3.2460   -0.0030   +282bps     +2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.05      2.20      2.35      1.98
 Hungary                  0.33      0.61      0.97      0.16
 Poland                   1.78      1.84      1.92      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto; Editing by Angus MacSwan)
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