May 7, 2018 / 9:18 AM / a year ago

CEE MARKETS-Romanian yields up, central bank seen increasing rates

    * Political pressure not seen preventing Romanian rate hike
    * Romania's 5-year and 10-year yields bid at four-year highs
    * Romanian central bank decision due around 1030 GMT 

    By Sandor Peto and Radu-Sorin Marinas
    BUDAPEST/BUCHAREST, May 7 (Reuters) - Romanian government
bond yields tested four-year highs on expectations that the
central bank would increase interest rates further in a
politically sensitive decision at its meeting later on Monday.
    The ruling Social Democrat Party has become increasingly
critical in recent months of the rate-tightening cycle launched
by the central bank early this year.
    In a salvo ahead of the meeting, a letter from the party's
head on Friday slammed the bank again for the two rate rises it
has delivered and for suggesting that the government's wage
increase policy had caused a jump in inflation.
    Romania has the highest inflation in the region, with an
annual rate of 5 percent in March. 
    "Romania has an inflation problem ... It is hard to predict
what will happen to inflation, just like in Turkey," one
Budapest-based fixed-income trader said. 
    On Monday the Turkish central bank lowered the upper limit
for its foreign exchange maintenance facility to withdraw lira
    Its Romanian peer also started to curb local currency
liquidity last month through a long-unused deposit facility. 
    It surprised in April by not increasing interest rates but
it is likely to lift them on Monday, several analysts have said,
despite the political pressure.
    Five out of eight analysts projected an increase of a
quarter of a percentage point by the Romanian central bank to
2.5 percent, with the rest expecting rates to remain unchanged.
    "We expect a 25 basis point hike and a moderate hawkish
tone, which could put RON (the leu) under some appreciation
pressure," ING analysts said in a note, adding that an auction
of 2024-expiry government bonds on Monday could run into poor
    The leu firmed by 0.1 percent to 4.6555 against
the euro by 0813 GMT, while the zloty shed 0.25
percent as continued buying of the U.S. dollar weighed on the
region's liquid currencies.
    Short-term Romanian interbank interest rates
indicated expectations for a rise in central bank rates.
    Romania's 10-year bond yield was bid at 4.72 percent in
early trade, up 5 basis points to its highest level since June
2014, while five-year yields also touched a four-year high.
    Elsewhere in the region, long-term bond yields were steady
or slightly lower.
    The market reaction could be neutral if the Romanian central
bank increases its rates and yields could remain well-anchored
in the near term, Raiffeisen analyst Imre Stephan said in a
    "As the year progresses, however, focus should shift to
fiscal uncertainties again, weighing overproportionately on
ROMGBs (Romanian bonds) compared with peers," he added.
            CEE       SNAPSHOT   AT                         
            MARKETS             1013 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5000   25.5100    +0.04%    +0.16%
 crown      >                                       
 Hungary    <EURHUF=  313.6500  313.5500    -0.03%    -0.87%
 forint     >                                       
 Polish     <EURPLN=    4.2491    4.2391    -0.24%    -1.71%
 zloty      >                                       
 Romanian   <EURRON=    4.6555    4.6600    +0.10%    +0.52%
 leu        >                                       
 Croatian   <EURHRK=    7.3990    7.4015    +0.03%    +0.42%
 kuna       >                                       
 Serbian    <EURRSD=  117.9600  118.2000    +0.20%    +0.46%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1102.39  1097.180    +0.47%    +2.25%
 Budapest             37982.87  37916.31    +0.18%    -3.54%
 Warsaw                2243.51   2233.35    +0.45%    -8.85%
 Bucharest             8825.64   8788.32    +0.42%   +13.82%
 Ljubljana  <.SBITOP    841.47    844.06    -0.31%    +4.35%
 Zagreb                1834.70   1837.72    -0.16%    -0.44%
 Belgrade   <.BELEX1    737.86    739.76    -0.26%    -2.89%
 Sofia                  652.88    652.88    +0.00%    -3.63%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.8450    0.0980   +141bps    +10bps
   5-year   <CZ5YT=R    1.2350    0.0220   +131bps     +3bps
   10-year  <CZ10YT=    1.7550    0.0250   +122bps     +3bps
   2-year   <PL2YT=R    1.5340    0.0050   +210bps     +1bps
   5-year   <PL5YT=R    2.4370   -0.0170   +251bps     -1bps
   10-year  <PL10YT=    3.1400   -0.0180   +260bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.97      1.08      1.18      0.90
 Hungary                  0.07      0.10      0.18      0.05
 Poland                   1.73      1.76      1.77      1.70
 Note: FRA  are for ask prices                              

 (Reporting by Sandor Peto
Editing by David Goodman)
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