September 26, 2018 / 3:06 PM / 3 months ago

CEE MARKETS-Crown retreats as CNB does not pledge one more 2018 hike

    * Crown reverses early firming after central bank hikes
rates
    * CNB says one more 2018 hike is likely, but it's not a
pledge

 (Recasts after Czech central bank rate hike and comments)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, Sept 26 (Reuters) - The crown sank to a
2-week low against the euro on Wednesday after the Czech central
bank (CNB) increased its interest rates again but did not pledge
another hike for the rest of the year.
    It raised rates for a third straight meeting as expected, to
fight inflation that is above its 2 percent target, boosted by a
surge in wages in the European Union's tightest labour market.  
    Markets had partly priced in one more hike before 2018.
    Governor Jiri Rusnok said the bank was likely to raise
interest rates again this year, but had no commitment to do so.

    He also said a board member who voted for stable interest
rates was slightly worried that the Czech central bank was the
only one in Central Europe which has swiftly raised rates.
    After the rate decision and the comments, the crown
 reversed a moderate early firming towards 5-month
highs against the euro, and touched a 2-week low instead, at
25.695.
    At 1349 GMT it was weaker by about a quarter of a percent at
25.68.
    Analysts said inflationary risks would maintain the need for
rate hikes. Some, however, said a less hawkish near-term path
for CNB interest rates is a risk, and this might prompt the CNB
pause its hikes.
    The pace will continue to hinge on the crown as a stronger
currency reduces inflation risks, analysts said.
    One more rate hike this year remains likely, Erste analyst
Jiry Polansky said in a note, adding that the crown could
appreciate next year.
    "For this reason, the CNB will hike only once in 2019, in
our view, because stronger exchange rate should tighten monetary
conditions adequately, which in fact should imply a lower need
for another interest rates increase," he added.   
    The crown's main regional peers, the zloty and the
forint, meanwhile, firmed about 0.15 percent. Warsaw's
blue chip stock index rose by 0.7 percent, while Prague
 shed 0.3 percent.
    Czech government bonds were mixed and their yield curve
flattened, with the 10-year paper bid at a yield of 2.2 percent,
down 2 basis points.
    Polish and Hungarian bond yields traded lower by 1-3 basis
points, tracking a retreat in U.S. Treasuries and Bund yields. 
    Hungarian bonds were supported by a well-bid, euro
denominated 7-year bond sale by the country on Tuesday, even
though yields in forint bonds often rise ahead of the government
bi-weekly auctions. The next tender is on Thursday.
    Elsewhere, Romania's leu, which outperformed its
regional peers in the past half year, touched a new six-week low
against the euro. 
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1549 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6800   25.6200    -0.23%    -0.54%
 crown      >                                       
 Hungary    <EURHUF=  323.7000  324.2000    +0.15%    -3.95%
 forint     >                                       
 Polish     <EURPLN=    4.2812    4.2873    +0.14%    -2.45%
 zloty      >                                       
 Romanian   <EURRON=    4.6630    4.6597    -0.07%    +0.36%
 leu        >                                       
 Croatian   <EURHRK=    7.4260    7.4272    +0.02%    +0.06%
 kuna       >                                       
 Serbian    <EURRSD=  118.3500  118.3700    +0.02%    +0.13%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1103.11  1106.340    -0.29%    +2.31%
                                       0            
 Budapest             36118.70  35868.88    +0.70%    -8.28%
 Warsaw                2298.36   2290.19    +0.36%    -6.62%
 Bucharest             8367.13   8378.04    -0.13%    +7.91%
 Ljubljana  <.SBITOP    840.24    848.08    -0.92%    +4.20%
            >                                       
 Zagreb                1788.82   1797.04    -0.46%    -2.93%
 Belgrade   <.BELEX1    725.74    727.75    -0.28%    -4.48%
            5>                                      
 Sofia                  621.74    623.52    -0.29%    -8.22%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.6550    0.1810   +217bps    +18bps
            R>                                      
   5-year   <CZ5YT=R    1.8910    0.0070   +198bps     +2bps
            R>                                      
   10-year  <CZ10YT=    2.2040   -0.0160   +168bps     +0bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5490   -0.0290   +207bps     -3bps
            R>                                      
   5-year   <PL5YT=R    2.5550   -0.0090   +264bps     +0bps
            R>                                      
   10-year  <PL10YT=    3.2420   -0.0140   +272bps     +1bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.03      2.15      2.29      1.58
            <PRIBOR=                                
            >                                       
 Hungary                  0.39      0.62      0.90      0.19
                                                    
 Poland                   1.77      1.80      1.84      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 

 (Reporting by Sandor Peto
Editing by Andrew Heavens)
  
 
 
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