October 29, 2018 / 11:10 AM / 10 months ago

CEE MARKETS-Czech crown bucks easing, helped by rate hike expectations

    * Uncertainty over German chancellor weakens currencies
    * Czech crown resists on central bank rate hike expectation
    * Romanian interbank rate retreats, central bank holds repo

    By Sandor Peto and Robert Muller
    BUDAPEST/PRAGUE, Oct 29 (Reuters) - Expectations the Czech
central bank will raise rates helped the crown resist a
weakening of Central European currencies as the euro also got
hit by uncertainty over German Chancellor Angela Merkel's hold
on her office.
    Merkel told leaders of her Christian Democrats that she will
not seek re-election as party chairwoman in early December.
 Germany is the European Union's biggest economy and
a key trading partner for its eastern members.
    The forint weakened by 0.2 percent against the
euro by 0909 GMT, while the Polish zloty and the
Romanian leu eased by about 0.1 percent.
    "Germany is causing a region-wide weakening," one
Budapest-based currency dealer said.
    Holidays in several countries in the region may keep market
liquidity low. Worries over Italy's increased budget deficit
target and U.S. jobs data later this week also may threaten
regional assets.
    The crown gave up its early gains, but stood
steady at 25.83 versus the euro. It is near its weakest levels
since July, even though the Czech central bank has raised rates
at its past three meetings, taking the main two-week repo rate
tot 1.50 percent.
    It is widely expected to raise rates further at its meeting
on Thursday to support the crown and fight inflation.

     "Apparently, an approach of 'we can do it, so let's do it'
will prevail over a more cautious stance which would rather wait
and see impact of policy tightening so far...," CSOB analysts
said in a note.
    Central Europe's stock exchanges shrugged off the report on
Merkel, with Warsaw's and Prague's main indices
rebounding from multi-month lows as Western European shares also
regained ground.
    Europe's auto stocks index jumped after a report
said China's regulator was planning to halve its car purchase
    Poland's 10-year bonds, boosted by a strong
auction on Friday, traded at their lowest yields since August
early in the session, but later tracked a rise in Bund yields
after the report on Merkel, and traded at 3.14 percent.
    Romania's three-month interbank rate, bid at 3.02
percent, retreated from its highest level since July, as the
Romanian central bank held a one-week repo auction.
    The auction provides funds to markets which have been short
of liquidity, partly due to end-of-month tax payments.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1109 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8300   25.8300    +0.00%    -1.11%
 crown      >                                       
 Hungary    <EURHUF=  324.4200  323.8300    -0.18%    -4.16%
 forint     >                                       
 Polish     <EURPLN=    4.3140    4.3094    -0.11%    -3.19%
 zloty      >                                       
 Romanian   <EURRON=    4.6640    4.6610    -0.06%    +0.34%
 leu        >                                       
 Croatian   <EURHRK=    7.4320    7.4323    +0.00%    -0.02%
 kuna       >                                       
 Serbian    <EURRSD=  118.3000  118.4500    +0.13%    +0.17%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1045.37  1031.630    +1.33%    -3.04%
 Budapest             36279.11  35937.61    +0.95%    -7.87%
 Warsaw                2115.07   2082.77    +1.55%   -14.06%
 Bucharest             8479.73   8412.36    +0.80%    +9.36%
 Ljubljana  <.SBITOP    794.36    807.83    -1.67%    -1.49%
 Zagreb                1796.05   1798.00    -0.11%    -2.54%
 Belgrade   <.BELEX1    735.60    749.69    -1.88%    -3.19%
 Sofia                  600.12    599.65    +0.08%   -11.41%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.6320    0.1590   +228bps    +14bps
   5-year   <CZ5YT=R    1.8400   -0.0170   +203bps     -5bps
   10-year  <CZ10YT=    2.1370   -0.0200   +175bps     -6bps
   2-year   <PL2YT=R    1.5540    0.0280   +220bps     +1bps
   5-year   <PL5YT=R    2.4120    0.0330   +260bps     +0bps
   10-year  <PL10YT=    3.1370    0.0130   +275bps     -3bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.05      2.20      2.35      1.79
 Hungary                  0.32      0.57      0.92      0.16
 Poland                   1.77      1.81      1.86      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Radu Marinas in Bucharest, editing by
Larry King)
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