June 19, 2018 / 3:05 PM / a month ago

CEE MARKETS-Forint rebounds as central bank envisions end to loose policy

    * Forint reverses fall towards record low on central bank
comment
    * Hungarian cbank says loose policy won't last over policy
horizon
    * Zloty weakens against the forint, euro

 (Recasts, with the Hungarian central banks decision and
comments, and market reaction)
    By Sandor Peto
    BUDAPEST, June 19 (Reuters) - The forint sharply rebounded
from a 3-year low to the euro on Tuesday after the Hungarian
central bank (NBH) set a time frame  for the first time for
ending its six-year-old loose policy.
    The bank kept interest rates at record lows, but said that 
"the current loose monetary conditions can no longer prevail up
to the end of the 5 to 8-quarter horizon of monetary policy".
    It said the European Central Bank's decisions may have a
significant influence on it, and dropped a reference to a goal
to keep long-term debt yields relatively low, to clarify that
inflation was its main policy anchor. 
    With the comments made in an unusual second, explanatory
statement following the NBH's meeting, one of the most dovish
central banks in the world has signalled quitting the camp of
monetary looseness in the foreseeable future.
    The change in the NBH's guidance leaves the Polish central
bank the most accommodative among Central Europe's main
economies.
    The forint/zloty exchange rate reflected the
relative change, with the forint firming through the 75 line,
gaining 0.6 percent against the euro to 322.16 by 1402 GMT,
while the zloty shed 0.25 percent to 4.307 per euro.
    Hungarian government bond yields did not continue to rise
after the bank's comments.
    "The forint firms, right, but in the bond market this is
what we had expected from the central bank," one Budapest-based
fixed income trader said.
    The forint and Hungarian government bonds have been  the
worst hit in the region from a sell-off in emerging markets in
the past two months, triggered by a rally of the dollar and U.S.
debt yields, and ultraloose monetary policy contributed to that.
    A pick-up in inflation across Central Europe in May also
weighed on appetite for the forint.
    The NBH on Tuesday slightly increased its forecasts for
inflation this year and next, but left its projection at three
percent for 2020, in the middle of its two to four percent
target range. 
    "The bank still does not fear any serious inflation danger,
while it watches capital market trends, and in making its
decisions it primarily focuses on the European Central Bank's
monetary policy," said Erste analyst Orsolya Nyeste in a note.
    Regional equities fell, led by Warsaw and Budapest
, as simmering trade tensions between the United States
and China knocked down stocks across the world.   
            CEE       SNAPSHOT   AT                         
            MARKETS             1602 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7920   25.7750    -0.07%    -0.97%
 crown      >                                       
 Hungary    <EURHUF=  322.1600  324.1000    +0.60%    -3.49%
 forint     >                                       
 Polish     <EURPLN=    4.3070    4.2963    -0.25%    -3.03%
 zloty      >                                       
 Romanian   <EURRON=    4.6685    4.6680    -0.01%    +0.24%
 leu        >                                       
 Croatian   <EURHRK=    7.3830    7.3790    -0.05%    +0.64%
 kuna       >                                       
 Serbian    <EURRSD=  118.0200  118.0700    +0.04%    +0.41%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1068.39  1069.400    -0.09%    -0.91%
                                       0            
 Budapest             35048.21  35505.46    -1.29%   -10.99%
 Warsaw                2118.50   2150.98    -1.51%   -13.92%
 Bucharest             8115.95   8163.77    -0.59%    +4.67%
 Ljubljana  <.SBITOP    890.98    888.87    +0.24%   +10.49%
            >                                       
 Zagreb                1820.61   1815.75    +0.27%    -1.21%
 Belgrade   <.BELEX1    733.78    734.98    -0.16%    -3.42%
            5>                                      
 Sofia                  630.96    630.77    +0.03%    -6.86%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.0650    0.0710   +172bps     +8bps
            R>                                      
   5-year   <CZ5YT=R    1.5620   -0.0220   +183bps     +1bps
            R>                                      
   10-year  <CZ10YT=    2.1710    0.0230   +181bps     +6bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6660    0.0220   +232bps     +3bps
            R>                                      
   5-year   <PL5YT=R    2.5570   -0.0060   +283bps     +3bps
            R>                                      
   10-year  <PL10YT=    3.2330    0.0260   +287bps     +6bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.17      1.29      1.43      0.93
            <PRIBOR=                                
            >                                       
 Hungary                  0.42      0.66      0.87      0.18
                                                    
 Poland                   1.74      1.77      1.82      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Additional reporting by Agnieszka Barteczko in Warsaw, Editing
by Andrew Heavens, William Maclean)
  
 
 
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