December 19, 2019 / 9:48 AM / a month ago

CEE MARKETS-Currencies steady, Czech crown supported by hawkish central bank shift

    By Krisztina Than
    BUDAPEST, Dec 19 (Reuters) - Currencies in Central Eastern
Europe were stuck in tight ranges on Thursday, with the Czech
crown holding on to recent levels after the central bank sent a
hawkish message to investors.    
    Governor Jiri Rusnok said after the bank's meeting on
Wednesday that the Czech National Bank may be close to raising
interest rates again to rein in domestic inflation if weakness
in the euro zone turns around. 
    The board voted 5-2 to maintain the key two-week repo rate
CZCBIR=ECI at 2.00%, where it has been since May, when the bank
delivered its eighth rate hike since 2017.
    "The press conference of Governor Rusnok had a more hawkish
tilt," Morgan Stanley analysts said in a note. 
    "We continue to think that probabilities are skewed towards
a rate hike and move our expectations for a 25bp hike into
1Q20."
    Central banks in Central Eastern Europe have been on the
sidelines, adopting a wait-and-see approach as inflation
pressures have been contained, despite substantial wage hikes
and tight labour markets, while the region's strong economies
are expected to slow next year. 
    The picture has changed slightly towards the end of the
year, as fears of a recession in the euro zone have subsided. On
Tuesday, the Hungarian central bank raised its GDP forecast for
next year and also raised its inflation forecast.
    The NBH left interest rates unchanged at 0.9% on Tuesday, as
expected, and maintained its loose policy stance, saying
inflation risks had become balanced again as recession fears
subsided in the euro zone.
    Czech forward markets (FRA or IRS) continued moving higher
on Thursday after rising on Wednesday, with the curve
steepening, showing the market believes less in the chances of
future rate cuts from the central bank.   
    "The market is still contemplating whether or not a hike in
February could come," a trader said.  
    The Czech crown at 25.49 is trading stronger than
what is assumed in the central bank's outlook, which sees an
average exchange rate in the fourth quarter of 25.7 per euro.
    The Hungarian forint eased 0.1% to 331.15 versus
the euro while the zloty was up 0.1%.
    "In the short run, we expect further losses, with the forint
moving towards 332-333," brokerage Equilor said in a note.    
                   CEE      SNAPSHO   AT                      
                   MARKETS  T        0939              
                                     CET               
                            CURRENC                           
                            IES                        
                            Latest   Previou  Daily    Change
                                     s                 
                            bid      close    change   in 2019
 EURCZK  Czech     <EURCZK  25.4900  25.4950   +0.02%   +0.85%
 =       crown     =>                                  
 EURHUF  Hungary   <EURHUF  331.150  330.760   -0.12%   -3.04%
 =       forint    =>             0        0           
 EURPLN  Polish    <EURPLN   4.2700   4.2728   +0.07%   +0.46%
 =       zloty     =>                                  
 EURRON  Romanian  <EURRON   4.7707   4.7720   +0.03%   -2.45%
 =       leu       =>                                  
 EURHRK  Croatian  <EURHRK   7.4480   7.4490   +0.01%   -0.51%
 =       kuna      =>                                  
 EURRSD  Serbian   <EURRSD  117.440  117.510   +0.06%   +0.73%
 =       dinar     =>             0        0           
         Note:     calculated from            1800            
         daily                                CET      
         change                                        
                                                              
                            Latest   Previou  Daily    Change
                                     s                 
                                     close    change   in 2019
 .PX     Prague             1107.92  1106.23   +0.15%   +12.30
                                          00                 %
 .BUX    Budapest           45559.5  45656.8   -0.21%   +16.40
                                  5        0                 %
 .WIG20  Warsaw    <.WIG20  2131.78  2131.85   -0.00%   -6.36%
                   >                                   
 .BETI   Buchares           9901.67  9907.25   -0.06%   +34.10
         t                                                   %
 .SBITO  Ljubljan  <.SBITO   922.34   924.42   -0.23%   +14.68
 P       a         P>                                        %
 .CRBEX  Zagreb    <.CRBEX  2009.26  2009.26   +0.00%   +14.89
                   >                                         %
 .BELEX  Belgrade  <.BELEX   768.06   768.06   +0.00%   +0.84%
 15                15>                                 
 .SOFIX  Sofia     <.SOFIX   548.79   548.04   +0.14%   -7.68%
                   >                                   
                            BONDS                             
                            Yield    Yield    Spread   Daily
                            (bid)    change   vs Bund  change
                                                       in
         Czech                                         spread
         Republic                                      
 CZ2YT=    2-year  <CZ2YT=   1.5350  -0.0050   +215bp    -1bps
 RR                RR>                              s  
 CZ5YT=    5-year  <CZ5YT=   1.3860   0.0400   +190bp    +3bps
 RR                RR>                              s  
 CZ10YT            <CZ10YT   1.6010   0.0300   +184bp    +2bps
 =RR     10-year   =RR>                             s  
         Poland                                               
 PL2YT=    2-year  <PL2YT=   1.4470  -0.0010   +206bp    -1bps
 RR                RR>                              s  
 PL5YT=    5-year  <PL5YT=   1.8030   0.0240   +232bp    +2bps
 RR                RR>                              s  
 PL10YT            <PL10YT   2.0810   0.0750   +232bp    +6bps
 =RR     10-year   =RR>                             s  
                   FORWARD  RATE     AGREEME                  
                                     NT                
                            3x6      6x9      9x12     3M
                                                       interba
                                                       nk
         Czech     <CZKFRA     2.26     2.27     2.25     2.18
         Rep       ><PRIBO                             
                   R=>                                 
         Hungary   <HUFFRA     0.25     0.32     0.37     0.16
                   ><BUBOR                             
                   =>                                  
         Poland    <PLNFRA     1.70     1.69     1.67     1.70
                   ><WIBOR                             
                   =>                                  
         Note:     are for ask                                
         FRA       prices                              
         quotes                                        
         ********************************************         
         ******************                            
 
    

 (Additional reporting by Alan Charlish in Warsaw and Jason
Hovet in Prague; editing by Nick Macfie)
  
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