July 4, 2018 / 2:31 PM / 4 months ago

CEE MARKETS-Leu eases as rate kept on hold, forint rebound continues

    * Leu falls as Romanian central bank does not hike rates
further
    * Markets had been deeply split over Romanian hike or hold
    * Central bank chief says inflation will fall from 5-year
high
    * Yuan fall reversal helps, forint assets sharply rebound

 (Recasts with Romanian central bank decision and comments,
analyst comments, graphics)
    By Sandor Peto
    BUDAPEST, July 4 (Reuters) - The leu weakened
against the euro on Wednesday after Romania's central bank (BNR)
kept interest rates on hold even though many market participants
had expected a hike.
    The leu underperformed its main regional peers, which firmed
as investors scaled back some of their currency selling
positions in emerging markets after the Chinese central bank
moved to reverse two months of falls in the yuan.    
 
    In the same period, capital flows into the dollar
knocked Central Europe's liquid currencies: the forint
and the zloty have shed almost five percent against
the euro this year and the Czech crown two percent.
    The forint firmed 0.6 percent to 325.5 by 1322 GMT, drifting
further off Monday's record lows of 330.70, the zloty gained 0.4
percent to 4.3795, and the crown 0.3 percent to 26.07.
    The leu, less liquid and more closely managed by the central
bank, has been steady this year, but eased 0.1 percent on
Wednesday.
    It briefly touched a nine-day low of 4.6685 after the BNR
kept its main rate on hold at 2.5 percent, but stayed well off
record lows set at 4.7 two weeks ago.
    BNR Governor Mugur Isarescu said Romanian monetary
conditions were tighter than the bank's main rate showed.

    The 3-month interbank ROBOR rate has risen by
about 130 basis points since late March to around 3.17 percent,
above the central bank's benchmark rate, as interbank liquidity
tightened.    
    Romania's inflation, running at 5.4 percent in May, is the
highest in the region. But Isarescu said it could fall to 3.6
percent by December, near the bank's 1.5-3.5 percent target
range.
    Elsewhere, the forint plunged and Hungarian government bond
yields have surged in the past two months as the sell-off in
emerging markets conincided with worries that inflation could
rise above the cenre of the National Bank of Hungary's (NBH) 2-4
percent target range.
    The Czech central bank failed to reverse a slide of the
crown to defend its two percent inflation target with a rate
hike last week.
    The forint reached record lows and Hungarian bond yields
multi-year highs early this week even though the NBH two weeks
ago abandoned its pledge to keep rates at record lows for years.
   
    It repeated that on Wednesday in the minutes of its June 19
meeting. The improved mood in international
markets, meanwhile, caused a sharp reversal in oversold, jittery
forint markets since Tuesday afternoon, traders said.
    The country's 10-year bonds traded at a yield of 3.55
percent, down from Tuesday's peak around 3.78 percent, after
10-20 basis point rise in yields early on Tuesday.
    "Foreign investors have started to buy Hungarian bonds
again," one Budapest-based fixed income trader said.
    The pressure on the NBH has eased, and now it is unlikely to
shift to policy tightening before its September inflation
report, unless the forint falls again significantly in a lasting
way, adding to inflation, ING analyst Peter Virovacz said.
    "What we have seen in the forint's strengthening now, is a
global, rather than a local impact," he said.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1522 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   26.0650   26.1450    +0.31%    -2.01%
 crown      >                                       
 Hungary    <EURHUF=  325.5000  327.3000    +0.55%    -4.48%
 forint     >                                       
 Polish     <EURPLN=    4.3800    4.3955    +0.35%    -4.65%
 zloty      >                                       
 Romanian   <EURRON=    4.6645    4.6580    -0.14%    +0.33%
 leu        >                                       
 Croatian   <EURHRK=    7.3970    7.3820    -0.20%    +0.45%
 kuna       >                                       
 Serbian    <EURRSD=  117.9000  117.9900    +0.08%    +0.51%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1073.04  1076.020    -0.28%    -0.47%
                                       0            
 Budapest             36414.04  36204.30    +0.58%    -7.53%
 Warsaw                2168.82   2160.24    +0.40%   -11.88%
 Bucharest             8002.14   7943.05    +0.74%    +3.20%
 Ljubljana  <.SBITOP    877.94    869.25    +1.00%    +8.87%
            >                                       
 Zagreb                1795.72   1800.96    -0.29%    -2.56%
 Belgrade   <.BELEX1    737.12    737.45    -0.04%    -2.98%
            5>                                      
 Sofia                  628.45    626.53    +0.31%    -7.23%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.2690    0.0110   +196bps     +1bps
            R>                                      
   5-year   <CZ5YT=R    1.6220    0.0010   +192bps     +0bps
            R>                                      
   10-year  <CZ10YT=    2.1910   -0.0330   +189bps     -4bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6580   -0.0080   +235bps     -1bps
            R>                                      
   5-year   <PL5YT=R    2.5680   -0.0660   +287bps     -7bps
            R>                                      
   10-year  <PL10YT=    3.2230   -0.0800   +293bps     -8bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.40      1.60      1.74      1.17
            <PRIBOR=                                
            >                                       
 Hungary                  0.77      1.00      1.22      0.30
                                                    
 Poland                   1.75      1.78      1.84      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
    
 (Additional reporting by Luiza Ilie in Bucharest and Jason
Hovet in Prague, Editing by Alison Williams, William Maclean)
  
 
 
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