March 12, 2019 / 10:28 AM / 4 months ago

CEE MARKETS-Leu hits 2-week low vs euro in CPI, trade deficit jump

    * Romania's inflation picks up more than expected in Feb
    * Investors await changes in Romanian taxes
    * Leu easing is unlikely to trigger central bank action

    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, March 12 (Reuters) - The leu eased on
Tuesday, underperforming other Central European units, after
Romania reported a rise in its inflation and trade deficit,
which is unlikely to trigger central bank action.
    A surge in wages across the fast-growing region, which is
trying to catch up in living standards with Western Europe, has
boosted Romania's trade deficit and consumer prices.
    Annual inflation has retreated from last year's levels of
more than 5 percent, but the rise in February to 3.8 percent
from 3.3 in January keeps it above the central bank's 1.5-3.5
percent target range.
    The trade deficit, fuelled by a rise in the consumption of
imported goods, widened by more than 60 percent on the year in
January to 1.259 billion euros.
    The Romanian central bank is unlikely to tighten policy as
investors wait for expected changes in new taxes on banks by
next week.
    Romanian asset prices have only partially recovered from a
plunge after the new taxes in sectors including banks, aimed to
finance increasing government spending, were announced in
    The leu eased 0.2 percent against the euro to
4.755, a 2-week low by 0931 GMT.
    The Czech crown and the forint were
steady. The zloty firmed and tested 5-week highs in
its cross with the Romanian currency.
    Erste group analysts said Romania's inflation could even
rise further in March to a peak "amid the recently announced
hike in the administered electricity price, higher tobacco
prices and the decision by some telecom companies to adjust
their prices as a result of the new tax on turnover".
    "However, we think that inflationary pressures will ease
later in 2019 and we see good chances that inflation would
re-enter inside the NBR's (central bank's) targeted band," they
said in a note.
    The new tax on bank assets has complicated monetary policy
because it has been linked to interbank rates. S&P gave two
weeks to Romania on March 2 to appeal its credit rating outlook,
changing its policy. 
    A leu fall was consistent with a rise in liquidity in
interbank markets where short-term interest rates fell.
    "Apparently it is all FX-driven again, with the NBR likely
to be complacent as long as there is no meaningful upside
pressure on the EUR/RON," ING analysts said in a note said.
    Romanian government bond yields jumped, rising more than
Polish and Czech peers which tracked a 1-2 basis point increase
in Bunds.
    Romanian 5-year bonds traded around 4.13 percent, up 9 basis
points, while the corresponding Polish yield rose 2 basis points
to 2.23 percent. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1031 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6600   25.6650    +0.02%    +0.18%
 crown      >                                       
 Hungary    <EURHUF=  315.7000  315.6500    -0.02%    +1.71%
 forint     >                                       
 Polish     <EURPLN=    4.2994    4.3036    +0.10%    -0.23%
 zloty      >                                       
 Romanian   <EURRON=    4.7550    4.7475    -0.16%    -2.12%
 leu        >                                       
 Croatian   <EURHRK=    7.4145    7.4125    -0.03%    -0.06%
 kuna       >                                       
 Serbian    <EURRSD=  117.9500  118.0800    +0.11%    +0.30%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1066.08  1059.680    +0.60%    +8.06%
 Budapest             40795.09  40819.55    -0.06%    +4.23%
 Warsaw                2309.22   2300.22    +0.39%    +1.43%
 Bucharest             7918.51   7935.54    -0.21%    +7.24%
 Ljubljana  <.SBITOP    872.94    873.24    -0.03%    +8.54%
 Zagreb                1767.61   1763.53    +0.23%    +1.08%
 Belgrade   <.BELEX1    695.86    695.46    +0.06%    -8.64%
 Sofia                  583.54    583.73    -0.03%    -1.84%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.8880    0.1120   +242bps    +10bps
   5-year   <CZ5YT=R    1.8020    0.0170   +217bps     -1bps
   10-year  <CZ10YT=    1.8940    0.0170   +179bps     -2bps
   2-year   <PL2YT=R    1.6140   -0.1110   +214bps    -12bps
   5-year   <PL5YT=R    2.2510    0.0180   +262bps     +0bps
   10-year  <PL10YT=    2.9280    0.0440   +282bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.19      2.25      2.26      2.03
 Hungary                  0.42      0.62      0.81      0.14
 Poland                   1.74      1.74      1.74      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto and Luiza Ilie; Editing by Angus
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