May 7, 2018 / 2:43 PM / 2 months ago

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

    * Romanian central bank hikes rates despite political
pressure
    * Romania's 5-year and 10-year yields bid at four-year highs
    * Leu bucks slide of other CEE units hit by dollar rally
    * Romanian government scraps bond auction on
undersubscription

 (Recasts with Romanian central bank decision and comments,
auctions, equities markets)
    By Sandor Peto and Radu-Sorin Marinas
    BUDAPEST/BUCHAREST, May 7 (Reuters) - The leu firmed on
Monday as the Romanian central bank increased interest rates,
while other Central European currencies were weaker on a dollar
rally.
    The leu traded at 4.656 versus the euro at 1356
GMT, retaining its early gain of 0.1 percent, while the zloty
led regional losers, shedding 0.4 percent.
    The Romanian central bank delivered its third rate hike
since it launched its tightening cycle in January to fight
inflation, raising its benchmark rate in an unanimous vote by 25
basis points to 2.5 percent in a politically sensitive decision.
    Many investors had expected the move, even though on Friday
a letter from the ruling Social Democrat Party's head slammed
the bank for its hikes and for suggesting that the government's
wage policy had caused a jump in inflation. 
    Even before the decision, five- and 10-year Romanian
government bond yields were bid at their highest levels in four
years, and after the hike short-term yields also rose. The
two-year yield was bid at 2.94 percent, up 6 basis points.
    Before the hike, the bank drained 3 billion lei worth of
liquidity from markets via its one-week deposits, at a
fixed rate of 2.25 percent.
    The finance ministry rejected all bids at a tender of
six-year bonds as the issue was heavily undersubscribed.
    Romania's annual inflation, the highest in the region, ran
at 5 percent in March. 
    Central bank Governor Mugur Isarescu said the rate would
return close to the upper end of the bank's 1.5-3.5 percent
target by the end of the year.
    The bank is likely to raise interest rates once more this
year, said Eugen Sinca, analyst of Erste Group in Bucharest.
    "But this is highly dependent on future inflation prints and
capital flows towards emerging markets for avoiding a high
interest rate differential and unwanted appreciation of the
leu," he added.
    Bucharest's main stock index rose by 0.7 percent,
approaching its April 26 10-year high.
    It was driven by Austrian oil group OMV's local unit
 and Societe Generale's local banking arm BRD
, firms, which reported a surge in first-quarter
earnings last week.
    Prague's main equities index firmed 1 percent as
shares in energy group CEZ hit their highest levels
since August 2015.
    Budapest bucked the rise, with its index dragged down
by a 1.6 percent fall in OTP Bank's shares which broke
through a key support level at 11,000 forints.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1546 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5230   25.5100    -0.05%    +0.07%
 crown      >                                       
 Hungary    <EURHUF=  314.3900  313.5500    -0.27%    -1.11%
 forint     >                                       
 Polish     <EURPLN=    4.2550    4.2391    -0.37%    -1.85%
 zloty      >                                       
 Romanian   <EURRON=    4.6560    4.6600    +0.09%    +0.51%
 leu        >                                       
 Croatian   <EURHRK=    7.3975    7.4015    +0.05%    +0.44%
 kuna       >                                       
 Serbian    <EURRSD=  118.0200  118.2000    +0.15%    +0.41%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1108.16  1097.180    +1.00%    +2.78%
                                       0            
 Budapest             37682.01  37916.31    -0.62%    -4.31%
 Warsaw                2238.19   2233.35    +0.22%    -9.06%
 Bucharest             8852.66   8788.32    +0.73%   +14.17%
 Ljubljana  <.SBITOP    844.82    844.06    +0.09%    +4.77%
            >                                       
 Zagreb                1829.59   1837.72    -0.44%    -0.72%
 Belgrade   <.BELEX1    739.47    739.76    -0.04%    -2.68%
            5>                                      
 Sofia                  652.88    652.88    +0.00%    -3.63%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.7400   -0.0070   +131bps     +0bps
            R>                                      
   5-year   <CZ5YT=R    1.2350    0.0220   +132bps     +4bps
            R>                                      
   10-year  <CZ10YT=    1.7290   -0.0010   +121bps     +2bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5360    0.0070   +211bps     +1bps
            R>                                      
   5-year   <PL5YT=R    2.4280   -0.0260   +251bps     -1bps
            R>                                      
   10-year  <PL10YT=    3.1550   -0.0030   +263bps     +2bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                0.97      1.08      1.18      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.10      0.18      0.05
                                                    
 Poland                   1.73      1.76      1.77      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Reporting by Sandor Peto
Editing by Alexander Smith)
  
 
 
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