June 6, 2018 / 3:58 PM / a year ago

CEE MARKETS-Zloty firms on dollar retreat, despite dovish central bank

    * Polish cbank seen holding rates, reaffirms loose policy
    * Zloty, forint firms as dollar bulls retreat
    * Crown sets 3-week high before easing slightly again 

 (Recasts with Polish central bank decision and comments)
    By Sandor Peto
    BUDAPEST, June 6 (Reuters) - The zloty and the forint firmed
on Wednesday, even though the Polish and Hungarian central banks
reaffirmed their loose policy stances, as investors scaled back
their dollar buying positions.
    A rally in the dollar and U.S. debt yields knocked Central
Europe's most liquid two currencies to their weakest levels for
over a year against the euro in May.
    The euro rose to a nearly two-week high against the
dollar on Wednesday after European Central Bank officials said
an end to the bank's bond buying programme was plausible.
    The zloty and forint regained some ground in the past week
as political uncertainty in Italy and Spain abated, and the
dollar's retreat helped them extend those gains.
    The zloty touched a 3-week high against the euro
even before Polish rate setters held a news conference after
announcing they had kept interest rates on hold at record lows.
    The Polish currency was up 0.3 percent against the euro to
4.2658 at 1526 GMT, while the forint was 0.1 percent
higher and the Czech crown slightly lower, retreating
from a nearly three-week high.
    At the news conference, Polish central bank governor Adam
Glapinski reiterated interest rates may remain at the current
level until the end of 2019, and possibly also in 2020. 

    He also said a rate cut was unlikely.
    The bank shortened its statement, "which we read as a signal
that the internal consensus of the Council to keep rates stable
for a long time is quite broad", BZ WBK analysts said in a note.
    While Polish rate setters played down inflation risks, the
first rate hike may come in late 2019, the analysts added.
    The dollar's weakening also helped the forint, even though
the Hungarian central bank also reaffirmed in the minutes of its
May 22 rate meeting that it would maintain loose monetary
conditions for a prolonged period. 
    The forint and zloty are still regional underperformers, and
are more than 2 percent down from the end of 2017 versus the
    The crown has shed only half a percent this year, backed by
interest rate hikes launched by the Czech central bank (CNB) 10
months ago.   
    CNB Governor Jiri Rusnok said on Tuesday the bank may raise
interest rates sooner than expected due to faster wage growth
and a weaker-than-expected crown.
    Czech markets have priced in a rate hike for October, but
the bank could increase rates at its August meeting, where it is
due to present its quarterly forecasts, a note from Komercni
Banka traders said.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1726 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6790   25.6600    -0.07%    -0.53%
 crown      >                                       
 Hungary    <EURHUF=  318.2000  318.6000    +0.13%    -2.29%
 forint     >                                       
 Polish     <EURPLN=    4.2658    4.2785    +0.30%    -2.10%
 zloty      >                                       
 Romanian   <EURRON=    4.6560    4.6525    -0.08%    +0.51%
 leu        >                                       
 Croatian   <EURHRK=    7.3880    7.3835    -0.06%    +0.57%
 kuna       >                                       
 Serbian    <EURRSD=  117.9800  118.0400    +0.05%    +0.44%
 dinar      >                                       
 Note:      calculated from               1800 CET          

 (Additional reporting by Jason Hovet in Prague and Agnieszka
Bartezcko in Warsaw; Editing by Alexandra Hudson and Mark
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