October 3, 2017 / 2:59 PM / 17 days ago

CEE MARKETS-Leu retreats as central bank pumps money into market

    * Czech two-year yield above zero for first time since Aug
2016
    * Leu retreats from near 6-week highs after central bank
meeting
    * Romanian central bank narrows rate corridor, pumps in
money
    * Romanian central bank warns of inflation, pledges to fight
it

 (Recasts with Romanian central bank meeting)
    By Sandor Peto and Radu-Sorin Marinas
    BUDAPEST/BUCHAREST, Oct 3 (Reuters) - Expectations for some
monetary tightening in Central Europe helped the mid-yield on
the Czech two-year government bond to rise above
zero on Tuesday for the first time in more than a year.
    The leu retreated from six-week highs as the Romanian
central bank narrowed the interest rate corridor around its main
rate and injected 9.4 billion lei into the market via a one-week
repo tender to ease a liquidity squeeze.
    After years in which interest rates trended downwards across
the region, policy divisions are starting to emerge, with a
rebound in inflation becoming a worry for central banks in the
Czech Republic and Romania.
    Romania's central bank keep its main interest rate on hold  
    at a record low 1.75 percent at its meeting on Tuesday as
expected, and narrowed the gap between its deposit an lending
rates to plus or minus 1.25 percent, from 1.5 percent.
 
    Its repo tender, which allotted money to 13 banks,
eased a squeeze, which had buoyed the leu, but contributed to a
rise in the three-month interbank rate to the
highest levels since late 2014 in recent days.
    Prime Minister Mihai Tudose criticised the central bank on
Friday for allowing the rise.
    The leu, which reached six-week highs against the
euro late on Monday, traded at 4.5885 at 1410 GMT, down 0.1
percent on the day.
    Central bank Governor Mugur Isarescu warned at a news
conference that consumer prices could rise faster than earlier
expected and that the bank will take "all needed measures" to
keep inflation within the target.
    Among European Union countries, so far only the Czech
central bank has followed the U.S. Federal Reserve in raising
borrowing costs, lifting its main rate in early August.
    Expectations for another increase in November have been
buoying Czech debt yields and helped the crown
strengthen above the 26 to the euro.
    The two-year Czech bond yield rose above zero, to 0.03
percent. The crown traded steady at 25.931.
    "We are close (to 25.900) but we have bounced back already
three times so far but every time above 26.000," one dealer
said. "As we are below now and as long as we stay here for a few
days I think we can test that level, but I don't think it'll be
a massive break."
    Foreign investors are sitting on a pile of long crown
positions. They bought tens of billions of euros worth of the
currency before the central bank in April removed a cap which
had kept the crown weaker than 27 to the euro for years.
    
               CEE MARKETS  SNAPSH   AT  1610 CET         
                            OT                      
                            CURRENCIES                    
                            Latest  Previo  Daily   Change
                                    us              
                            bid     close   change  in
                                                    2017
 Czech crown                25.931  25.927  -0.01%   4.15%
                                 0       5          
 Hungary                    312.05  312.24   +0.06  -1.04%
 forint                         00      00       %  
 Polish zloty               4.3085  4.3167   +0.19   2.21%
                                                 %  
 Romanian leu               4.5885  4.5849  -0.08%  -1.17%
 Croatian                   7.4845  7.4985   +0.19   0.94%
 kuna                                            %  
 Serbian                    119.11  119.16   +0.04   3.56%
 dinar                          00      00       %  
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            STOCKS                        
                            Latest  Previo  Daily   Change
                                    us              
                                    close   change  in
                                                    2017
 Prague                     1049.9  1050.7  -0.07%   +13.9
                                 8       4              3%
 Budapest                   37950.  37751.   +0.52   +18.5
                                01      85       %      8%
 Warsaw                     2469.4  2469.5  -0.03%   +26.7
                                 9       8              8%
 Bucharest                  7901.9  7894.2   +0.10   +11.5
                                 1       6       %      3%
 Ljubljana                  800.31  795.37   +0.62   +11.5
                                                 %      3%
 Zagreb                     1805.2  1807.5  -0.13%  -9.51%
                                 3       3          
 Belgrade                   721.10  719.50   +0.22   +0.52
                                                 %       %
 Sofia                      680.67  687.75  -1.03%   +16.0
                                                        7%
                            BONDS                         
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
 Republic                                           
   2-year                    0.254  -0.028   +095b   -4bps
                                                ps  
   5-year                    0.328  -0.004   +060b   -1bps
                                                ps  
   10-year                   1.338    0.01   +087b   +0bps
                                                ps  
 Poland                                                   
   2-year                    1.755   0.006   +246b   +0bps
                                                ps  
   5-year                    2.709   0.013   +298b   +1bps
                                                ps  
   10-year                   3.382   0.022   +292b   +1bps
                                                ps  
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
                                                    interb
                                                    ank
 Czech Rep             <PR    0.75    0.89    1.02       0
               IBOR=>                               
 Hungary               <BU    0.07    0.11    0.14    0.03
               BOR=>                                
 Poland                <WI   1.769   1.822   1.886    1.73
               BOR=>                                
 Note: FRA     are for ask                                
 quotes        prices                               
 *********************************************************
 *****
        

 (Additional reporting from Luiza Ilie  in Bucharest/Jason Hovet
in Prague; Editing by Larry King)
  
 
 

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