November 13, 2017 / 2:52 PM / a month ago

CEE MARKETS-Leu sets record low despite expected strong GDP growth

    * Romania fiscal, monetary policy uncertainty weighs on its
assets
    * Leu hits record lows though robust Q3 growth figure is
expected
    * Zloty eases, CPI figures do not support case of rate hikes

 (Adds leu record low, failed Romanian bond auction, Polish
data, new comment)
    By Sandor Peto
    BUDAPEST, Nov 13 (Reuters) - The leu set record lows on
Monday despite expectations for robust output data from Romania,
depressed by uncertainty over a likely government spending spree
and continuing fraud investigations in Bucharest.
    Anti-corruption prosecutors opened a probe into the leader
of the ruling Social Democrat Party, Liviu Dragnea, on suspicion
of forming a "criminal group" to siphon off cash from state
projects.
    A controversial tax overhaul plan has also weighed on
Romanian asset prices.
    The leftists' fiscal policy has been loose, including steep
wage hikes which boosted Romania's inflation to a four-year high
of 2.6 percent by October and led to an upwards revision in the 
central bank's (NBR) inflation forecast last week.
    It also signalled a shift in its monetary policy focus to
keeping market interest rates near its benchmark rate, and said
that it would be more flexible on the exchange rate.
    Its comments pushed the leu through the 4.6 line against the
euro, which market participants had believed was defended by the
NBR in the past.
    The leu set record lows and slipped further on
Monday to 4.657. At 1425 GMT, it traded at 4.6553, weaker by
0.15 percent from Friday's close.
    Romanian government bond prices have also dropped and their
yields reached multi-year highs by Friday.
    On Monday, Romanian debt managers rejected all bids at a
tender to sell March 2022 bonds as demand was less than half the
offered amount. 
    The main Central European economies are due to release 
third-quarter economic output figures on Tuesday. 
    Romania is expected to report the strongest annual growth
rate in the region. The median forecast of analysts in a Reuters
poll was 5.8 percent for Romania's growth.
    Given uncertainties over fiscal policy, government spending
late this year and the NBR's response, Romanian assets will
remain fragile, market participants said.
    "Whereas we would not exclude additional short-term setbacks
for the leu..., a fast depreciation towards EUR/RON 4.70 would
increase pressure for policy makers to react," Raiffeisen
analyst Gunter Deuber said in a note.
    The prospect of strong output data did not help Poland's
zloty either, which eased 0.2 percent to 4.2355
against the euro, even though the central bank (NBP) said
fundamentals would justify some zloty firming.
    Detailed October inflation data did not change the
perception that the bank is unlikely to tighten interest rates 
before the last quarter of 2018. 
    "(Capital) inflow to the region continues, but from the
other side, the NBP maintain that there is no hurry with hikes,
so the zloty lost some wind in the sails," said Piotr Poplawski,
senior economist of ING Bank.    
               CEE MARKETS  SNAPSH   AT  1525 CET         
                            OT                      
                            CURRENCIES                    
                            Latest  Previo  Daily   Change
                                    us              
                            bid     close   change  in
                                                    2017
 Czech crown                25.554  25.556   +0.01   5.69%
                                 0       5       %  
 Hungary                    311.92  311.73  -0.06%  -0.99%
 forint                         00      50          
 Polish zloty               4.2355  4.2263  -0.22%   3.98%
 Romanian leu               4.6553  4.6481  -0.15%  -2.58%
 Croatian                   7.5500  7.5465  -0.05%   0.07%
 kuna                                               
 Serbian                    118.47  118.62   +0.13   4.12%
 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                     1061.8  1063.7  -0.17%   +15.2
                                 4       0              2%
 Budapest                   39446.  39435.   +0.03   +23.2
                                86      24       %      6%
 Warsaw                     2443.2  2457.6  -0.59%   +25.4
                                 1       2              3%
 Bucharest                  7750.9  7771.6  -0.27%   +9.40
                                 6       3               %
 Ljubljana                  787.92  792.00  -0.52%   +9.80
                                                         %
 Zagreb                     1844.4  1857.0  -0.68%  -7.54%
                                 0       2          
 Belgrade                   736.12  738.64  -0.34%   +2.61
                                                         %
 Sofia                      669.31  671.78  -0.37%   +14.1
                                                        3%
                            BONDS                         
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
 Republic                                           
   2-year                     0.49   0.145   +123b   +14bp
                                                ps       s
   5-year                    0.881   0.009   +121b   +1bps
                                                ps  
   10-year                   1.713  -0.001   +131b   +0bps
                                                ps  
 Poland                                                   
   2-year                    1.614   0.042   +236b   +4bps
                                                ps  
   5-year                    2.592   0.014   +292b   +2bps
                                                ps  
   10-year                   3.422   0.047   +302b   +5bps
                                                ps  
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
                                                    interb
                                                    ank
 Czech Rep             <PR    0.96    1.11    1.22       0
               IBOR=>                               
 Hungary               <BU    0.03    0.06    0.09    0.03
               BOR=>                                
 Poland                <WI   1.767    1.81   1.913    1.73
               BOR=>                                
 Note: FRA     are for ask                                
 quotes        prices                               
 *********************************************************
 *****
 
 (Additional reporting by Luiza Ilie in Bucharest and Bartosz
Chmielewski in Warsaw, Editing by Angus MacSwan/William Maclean)
  
 
 

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