August 9, 2018 / 2:23 PM / 6 days ago

CEE MARKETS-Czech crown, dinar bucks risk aversion-driven weakening

    * Serbian central bank keeps 3 pct main rate on hold
    * Dinar firms, risk aversion weakens most other CEE units
    * Czech CPI retreat does not remove rate hike expectations

 (Recasts with Serbian central bank decision, analyst comment,
regional currency poll)
    By Sandor Peto
    BUDAPEST, Aug 9 (Reuters) - The crown and dinar bucked a
fall in Central European currencies on Thursday as Czech
inflation data kept alive expectations for higher interest rates
and the Serbian central bank left its benchmark rate unchanged.
    Investors mostly shunned currencies in emerging markets,
with fresh U.S. sanctions knocking down the rouble and Turkey's
lira also falling further.
    The forint and the zloty eased 0.3
percent against the euro by 1303 GMT, even though they did not
drift far from multi-month highs on the firm side of the 320,
and 4.27 lines, respectively.
    The leu, after setting a new two-week low, traded
at 4.651, down 0.2 percent.
    It fell from Friday's seven-month highs after the Romanian
central bank earlier this week disappointed some investors by
not increasing its interest rates further, and said annual
inflation could fall by the end of 2018 to 3.5, the top of its
target rage, from 5.4 percent in June.
    Hungary's and Poland's central banks have retained their
loose monetary policy despite pressure on their currencies
between April and July due to flows into the rallying dollar.
    The dinar, on the contrary, was strengthened in the past
months by investments and remittances from Serbians working
abroad.
    The Serbian central bank, meeting on Thursday, did not react
to the past few months dinar selling with a cut in its 3 percent
benchmark rate, the highest in the region, citing a rise in
inflation and in the interest rates of leading central banks.
    
    The dinar firmed 0.1 percent to 117.9 against the
euro.
    "We expect that the NBS will keep the key rate at the
current level throughout the year, as we also expect a pickup in
inflation and continuation of solid economic trends," Erste
analyst Milan Deskar-Skrbic said in a note.
    The Czech crown also bucked the regional trend, gaining 0.1
percent, to trade at 25.563.
    Czech annual inflation retreated to 2.3 percent in July from
2.6 percent in June according to data published on Thursday.
    The figure is still above the Czech central bank's (CNB) two
percent target and in line with expectations, therefore it does
not change expectations that the bank will continue to increase
interest rates to fight inflation, analysts said.
    "Although the July result was (by 0.3 percentage point)
below the central bank's expectation, we don't assume that the
bank would change its rhetoric on monetary policy," said Pavel
Sobisek, UniCredit UniCredit's Czech unit. 
    Likely strong core inflation could even bring forward the
next CNB rate hike, Citigroup said in a note, adding that the
hike could come earlier than the fourth quarter.
    According to an Aug. 6-8 Reuters poll of analysts, expected
CNB rate increases could strengthen the crown by 2.4 percent
relative to Wednesday's close to 25 versus the euro in the
coming year, while the leu is seen easing 1.5 percent to 4.71.

    
            CEE       SNAPSHOT   AT                         
            MARKETS             1503 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5630   25.5960    +0.13%    -0.08%
 crown      >                                       
 Hungary    <EURHUF=  320.1000  319.3000    -0.25%    -2.87%
 forint     >                                       
 Polish     <EURPLN=    4.2733    4.2616    -0.27%    -2.27%
 zloty      >                                       
 Romanian   <EURRON=    4.6510    4.6420    -0.19%    +0.62%
 leu        >                                       
 Croatian   <EURHRK=    7.4380    7.4325    -0.07%    -0.10%
 kuna       >                                       
 Serbian    <EURRSD=  117.9000  118.0200    +0.10%    +0.51%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1077.78  1084.800    -0.65%    -0.04%
                                       0            
 Budapest             36818.71  36954.16    -0.37%    -6.50%
 Warsaw                2311.79   2307.12    +0.20%    -6.07%
 Bucharest             8202.35   8231.38    -0.35%    +5.79%
 Ljubljana  <.SBITOP    882.78    884.04    -0.14%    +9.47%
            >                                       
 Zagreb                1840.85   1838.74    +0.11%    -0.11%
 Belgrade   <.BELEX1    746.49    742.96    +0.48%    -1.75%
            5>                                      
 Sofia                  641.56    640.46    +0.17%    -5.30%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.3370    0.0680   +195bps     +8bps
            R>                                      
   5-year   <CZ5YT=R    1.7310   -0.0060   +198bps     +2bps
            R>                                      
   10-year  <CZ10YT=    2.2070   -0.0080   +183bps     +1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6040   -0.0120   +222bps     +0bps
            R>                                      
   5-year   <PL5YT=R    2.4730   -0.0170   +272bps     +0bps
            R>                                      
   10-year  <PL10YT=    3.1260    0.0060   +275bps     +2bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.65      1.75      1.95      1.46
            <PRIBOR=                                
            >                                       
 Hungary                  0.47      0.70      0.93      0.16
                                                    
 Poland                   1.73      1.76      1.80      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
    
 (Additional reporting by Aleksandar Vasovic in Belgrade/Robert
Muller and Jason Hovet in Prague, Editing by William Maclean)
  
 
 
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