May 2, 2019 / 3:06 PM / 21 days ago

CEE MARKETS-Crown retreats as CNB delivers first and possibly last 2019 hike

    * CNB sees rate stability until mid-2020
    * Czech crown, earlier backed by rate hike forecasts,
retreats
    * Forint touches 5-month low, regains ground after strong
PMI

 (Recasts with CNB decision and comments)
    By Sandor Peto and Robert Muller
    BUDAPEST, May 2 (Reuters) - The crown fell on Thursday after
the Czech central bank (CNB) delivered its first 2019 interest
rate hike, possibly the last for over a year as Europe's
economic slowdown is seen putting a lid on inflation in Central
Europe as well.
    The bank increased its main interest rate by 25 basis points
to 2 percent, its eighth hike in a tightening cycle which
supported the crown in the past two years.            
    A rise in inflation across Central Europe this year fuelled
expectations for one further hike, but the bank's Governor Jiri
Rusnok said its new economic outlook did not envisage a further
rise in the coming year.
    The crown, which was flat before the CNB's
meeting, weakened by 0.3 percent to 25.7 versus the euro by 1348
GMT. It retreated further from a 3-week high of 25.588 touched
in  international trade on Wednesday when domestic markets were
closed due to the May Day holiday.
    Ongoing negative sentiment over European economies) will
mean a relatively low pace of appreciation by the koruna, Erste
analysts said in a note, adding that the Czech currency was
generally overbought.
    The koruna also weakened versus its regional peers, the
forint and the zloty, which firmed 0.15 and
0.05 percent respectively versus the euro.
    In early trade, the crown even touched its strongest levels
since January against the forint. The Hungarian unit
rebounded from a 5-month low hit at 324.85 early on Thursday.
    It has been under pressure since the National Bank of
Hungary gave up its guidance for gradual monetary tightening in
March after slightly increasing its overnight deposit rate to
-0.05 percent in what analysts called "a dovish hike".
    Before the CNB's decision, Rabobank analysts said in a note
that the Czech bank could deliver a "dovish hike".
    The CNB said risks and uncertainties to its forecasts
included a more pronounced and possibly also longer-lasting euro
zone slowdown, as well as potential protectionist measures
affecting global trade and the crown currency's developments.
    Hungary's central bank said in its statements in March and
April and its latest meeting minutes that inflation trends were
ambivalent, with strong domestic demand pushing prices higher,
but with international impacts weighing on them.
    Central Europe's first April 2019 inflation data, released
in Warsaw early this week, showed a continuing acceleration.
    But Thursday's weak April purchasing managers' index (PMI)
figures from Prague and Poland argued against monetary
tightening, while Hungary's own index was robust.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1548 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.7000   25.6290    -0.28%    +0.03%
 crown      >                                       
 Hungary    <EURHUF=  324.0600  324.5500    +0.15%    -0.92%
 forint     >                                       
 Polish     <EURPLN=    4.2810    4.2832    +0.05%    +0.20%
 zloty      >                                       
 Romanian   <EURRON=    4.7580    4.7580    +0.00%    -2.19%
 leu        >                                       
 Croatian   <EURHRK=    7.4135    7.4120    -0.02%    -0.05%
 kuna       >                                       
 Serbian    <EURRSD=  118.0000  117.9700    -0.03%    +0.25%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1081.24  1068.720    +1.17%    +9.60%
                                       0            
 Budapest             42479.63  42520.11    -0.10%    +8.54%
 Warsaw                2321.70   2334.21    -0.54%    +1.98%
 Bucharest             8443.20   8441.95    +0.01%   +14.35%
 Ljubljana  <.SBITOP    887.95    887.95    +0.00%   +10.41%
            >                                       
 Zagreb                1839.27   1837.98    +0.07%    +5.17%
 Belgrade   <.BELEX1    744.04    744.04    +0.00%    -2.32%
            5>                                      
 Sofia                  571.94    575.06    -0.54%    -3.79%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.7340    0.1270   +233bps    +13bps
            R>                                      
   5-year   <CZ5YT=R    1.7750    0.0120   +220bps     +2bps
            R>                                      
   10-year  <CZ10YT=    1.8900   -0.0040   +188bps     +0bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.7120    0.0200   +231bps     +2bps
            R>                                      
   5-year   <PL5YT=R    2.3690    0.0200   +279bps     +3bps
            R>                                      
   10-year  <PL10YT=    3.0410    0.0310   +303bps     +4bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.23      2.24      2.24      2.05
            <PRIBOR=                                
            >                                       
 Hungary                  0.34      0.49      0.68      0.16
                                                    
 Poland                   1.75      1.77      1.81      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
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 *************                                      
 
 (Additional reporting by Radu Marinas in Bucharest Editing by
Mark Heinrich)
  
 
 
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