August 10, 2018 / 9:26 AM / 9 months ago

CEE MARKETS-Leu falls to 3-week low as Romania's inflation falls

    * Rouble, lira plunge sours mood, knocks down CEE currencies
    * Leu extends the week's loss after large July inflation
    * Warsaw leads regional equities loss, driven by bank shares

    By Sandor Peto
    BUDAPEST, Aug 10 (Reuters) - The leu set a three-week low
against the euro on Friday as Romania's inflation rate, the
highest in Central Europe, fell sharply, while the global mood
in emerging markets was negative.
    A plunge of the Turkish lira and the Russian rouble soured
sentiment in emerging markets.
    The most liquid units of Central Europe, the forint
 and the zloty got the biggest hit, as usual.
    The Hungarian currency fell to a 2-week low, shedding 0.8
percent against the euro, to trade at 323.1 at 0800 GMT. The
zloty tested the 4.3 psychological line, weakening by half a
    Hungary and Poland's central banks have kept their policy
loose despite a regionwide pick-up in inflation before July,
making their currencies the region's biggest losers in a
sell-off in emerging markets due to the dollar's rally.
    They have regained ground in the past weeks, but the forint
is still weaker by 3.8 percent and the zloty by 2.8 percent from
the end of 2017.
    In contrast, rate hikes in Romania have slightly
strengthened the leu, even though it has given up one
percent in the past week, retreating from seven-month highs.
    It slightly extended its loss on Friday after new figures
showed that Romania's inflation rate fell sharply to 4.6 percent
in July from June's 5-year high 5.4 percent.
    Earlier this week the leu fell because the Romanian central
bank (NBR) did not increase interest rates on Monday,
disappointing some investors, and later said that inflation
could retreat to the top of its 1.5-3.5 percent target range by
the end of 2018.
    "Under these circumstances and with no surprises from the
external environment, the NBR has little reason to hike the
policy rate in the remainder of 2018," said Erste analyst Eugen
Sinca in a note on the July inflation figures.    
    The yield on Romania's 10-year government bonds fell to a
3-month low. It was bid at 4.76 percent at 0834 GMT, down 5
basis points.
    The Czech central bank said in the minutes of its Aug. 2
rate meeting that their forecasts pointed towards a
50-basis-point rate hike rather than the 25 basis points
actually delivered at the meeting.
    But markets could have misinterpreted a bigger hike as a
panic reaction to the crown's weakness and a sign that the bank
was targeting the exchange rate rather than inflation, the
minutes said.    
    Global risk aversion hit Central Europe's equities markets
as well. Warsaw led a decline, with its blue chip index
shedding 1.6 percent, mainly driven by financial sector shares.
    The index of bank stocks listed in Warsaw drifted
further off 12-week highs reached on Wednesday.
    OTP stocks fell 2.7 percent even though Hungary's
biggest bank reported record second-quarter net profits.

            CEE       SNAPSHOT   AT                         
            MARKETS             1000 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6300   25.5900    -0.16%    -0.34%
 crown      >                                       
 Hungary    <EURHUF=  323.1000  320.5900    -0.78%    -3.77%
 forint     >                                       
 Polish     <EURPLN=    4.2976    4.2780    -0.46%    -2.82%
 zloty      >                                       
 Romanian   <EURRON=    4.6565    4.6546    -0.04%    +0.50%
 leu        >                                       
 Croatian   <EURHRK=    7.4315    7.4375    +0.08%    -0.02%
 kuna       >                                       
 Serbian    <EURRSD=  117.7900  117.9700    +0.15%    +0.60%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1075.39  1079.270    -0.36%    -0.26%
 Budapest             36361.53  36844.99    -1.31%    -7.66%
 Warsaw                2287.65   2324.73    -1.60%    -7.05%
 Bucharest             8170.57   8203.98    -0.41%    +5.38%
 Ljubljana  <.SBITOP    883.78    882.78    +0.11%    +9.60%
 Zagreb                1842.29   1841.80    +0.03%    -0.03%
 Belgrade   <.BELEX1    746.41    746.49    -0.01%    -1.76%
 Sofia                  644.64    641.76    +0.45%    -4.84%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.3440    0.0920   +199bps    +12bps
   5-year   <CZ5YT=R    1.7360    0.0050   +203bps     +4bps
   10-year  <CZ10YT=    2.1840   -0.0220   +185bps     +2bps
   2-year   <PL2YT=R    1.6210    0.0050   +226bps     +3bps
   5-year   <PL5YT=R    2.4800    0.0160   +277bps     +5bps
   10-year  <PL10YT=    3.1310    0.0320   +279bps     +7bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.65      1.75      1.95      1.46
 Hungary                  0.50      0.73      0.95      0.16
 Poland                   1.73      1.75      1.80      1.70
 Note: FRA  are for ask prices                              
 (Additional reporting by Luiza Ilie in Bucharest
Editing by Peter Graff)
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