February 26, 2018 / 10:32 AM / a year ago

CEE MARKETS-Dinar hits 3-and-1/2-year high on auctions demand

    * Serbian debt auctions boost demand for dinar
    * Forint hits 2018 low ahead of central bank meeting

    By Sandor Peto and Aleksandar Vasovic
    BUDAPEST, Feb 26 (Reuters) - The Serbian dinar rose to its
strongest levels against the euro in 3 1/2 years on Monday,
continuing to outperform Central European peers as Belgrade's
treasury bond auctions boost demand for the currency.
    The rally went on even though the Serbian central bank has
repeatedly sold the dinar in the market this month, and Friday's
data showing a decline in inflation did not support monetary
    On Monday Prime Minister Ana Brnabic pledged a new deal with
the International Monetary Fund by mid-2018 that will focus on
reforms to boost economic growth.
    "The dinar will likely continue to strengthen until after
municipal elections in Belgrade (on March 4) which will serve
the ruling coalition to cement power," one Belgrade-based dealer
    The dinar firmed 0.1 percent against the euro to
117.9 by 0915 GMT, while most other units in the region eased
    Lower inflation has a downbeat impact on Serbian government
debt yields, Raiffeisen analyst Ljiljana Grubic said in a note. 
    "We still maintain (our forecasts for) the key (Serbian
central bank) rate intact at 3.5 percent year-on-year, but will
closely look at inflation sentiment," she added.
    Elsewhere, the forint touched its weakest levels
against the euro this year, at 313.29, ahead of a meeting of the
Hungarian central bank on Tuesday. It is expected to keep
interest rates on hold at record lows.
    But it may suggest a rise in its offer at its upcoming
interest rate swap auction, which injects cheap liquidity into
markets - or further monetary easing, Raiffeisen analyst
Gintaras Shlizhyus said.
    "The market remains sceptical about (the bank's) ability to
hold loose policy bias in the absence of material substance, so
only verbal interventions may fail to work this time," he said.
    In Warsaw, the zloty firmed 0.1 percent to 4.1697
against the euro, regaining some ground after a fall last week
as dovish Polish rate-setter Eryk Lon warned the zloty's
strength was starting to hurt exports.
    Hawkish central banker Kamil Zubelewicz told Reuters that
policymakers with bad memories of deflation may not vote for a
rate hike until late 2019 even if inflation temporarily surges
to as high as 4 percent.
    Central European states including Poland are expected to
report upbeat February manufacturing and fourth-quarter GDP
figures in the next days.
    "But for the zloty the most important thing should be
performance of risk-free interest rates on global markets,"
mBank analysts said in a note, adding that a rise in yields
could cause a zloty retreat.
            CEE       SNAPSHOT   AT                         
            MARKETS             1015 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.3650   25.3600    -0.02%    +0.70%
 crown      >                                       
 Hungary    <EURHUF=  313.1500  313.0500    -0.03%    -0.71%
 forint     >                                       
 Polish     <EURPLN=    4.1697    4.1734    +0.09%    +0.16%
 zloty      >                                       
 Romanian   <EURRON=    4.6575    4.6555    -0.04%    +0.48%
 leu        >                                       
 Croatian   <EURHRK=    7.4370    7.4335    -0.05%    -0.09%
 kuna       >                                       
 Serbian    <EURRSD=  117.9000  118.0100    +0.09%    +0.51%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1108.22  1104.960    +0.30%    +2.79%
 Budapest             38420.27  38240.09    +0.47%    -2.43%
 Warsaw                2422.08   2406.11    +0.66%    -1.59%
 Bucharest             8360.19   8356.13    +0.05%    +7.82%
 Ljubljana  <.SBITOP    812.36    809.81    +0.31%    +0.74%
 Zagreb                1819.68   1823.61    -0.22%    -1.26%
 Belgrade   <.BELEX1    752.15    755.47    -0.44%    -1.01%
 Sofia                  685.88    687.26    -0.20%    +1.24%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.6530    0.0700   +117bps     +7bps
   5-year   <CZ5YT=R    1.0690    0.0270   +104bps     +4bps
   10-year  <CZ10YT=    1.8060   -0.0320   +115bps     -3bps
   2-year   <PL2YT=R    1.6740   -0.0010   +220bps     -1bps
   5-year   <PL5YT=R    2.6790    0.0150   +265bps     +3bps
   10-year  <PL10YT=    3.4270    0.0020   +277bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.98      1.08      1.25      0.91
 Hungary                  0.07      0.11      0.20      0.02
 Poland                   1.75      1.79      1.85      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Marcin Goclowski from Warsaw; editing
by Mark Heinrich)
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