May 25, 2018 / 2:00 PM / 3 months ago

CEE MARKETS-Crown regains ground, talked up by central bank chief

    * Crown weakness can lead to earlier, bigger rate
hike-cbanker
    * U.S. yield fall helps CEE assets, dollar firming weighs on
them
    * Assets mixed, currencies drift off multi-month lows
    * Leu resists pressure, trades near its firmest 2018 levels

 (Recasts with Czech central bank chief comments)
    By Sandor Peto
    BUDAPEST, May 25 (Reuters) - The crown trimmed its
losses against the euro on Friday after Czech Central Bank (CNB)
Governor Jiri Rusnok said its weakness may bring forward the
next interest rate hike.
    Trading at 25.79 versus the euro at 1247 GMT, the crown was
a shade weaker from Thursday, while Central European markets
were mixed, with the zloty firming 0.1 percent,
drifting off a 6-and-1/2-month low set in early trade.  
    If the crown remains weaker than expected a little longer,
"the space for another hike will come maybe a bit earlier and
maybe will be a bit bigger", Rusnok said.
    The bank has projected its next rate hike to come around the
end of the year, but most analysts in a Reuters poll early this
month forecast the rise for the third quarter of the year. 
    Regional assets generally took a breather on Friday after a
recovery in bond and stock prices in the previous session.
    Equities mostly eased. Budapest's main stock index
shed almost 1 percent, driven by a 4 percent decline in OTP Bank
 to the key 10,000-forint ($36.49) line as the shares
started ex-dividend trade.  
    The dollar's rally versus the euro has been the key
driver of a sell-off in emerging markets including Central
Europe this month, along with a rise in the U.S. 10-year
Treasury yield to above 3 percent.
    The dollar advanced further on Friday, but the U.S. bond saw
its yield dropping 4 basis points to 2.936 percent.
    It has fallen since Federal Reserve minutes published on
Wednesday indicated a slower-than-expected rate hike pace. This
triggered a relief rally in Central European government bond
markets, which continued in some parts of the market on Friday. 
    Romanian bonds were bid lower by 1-2 basis points, while the
leu was steady at 4.6304 versus the euro.
    The Romanian unit, which is more closely managed by the
central bank than its more liquid regional peers, has not only
weathered the global storm but even firmed this week.
    On Thursday it reached its strongest level this year apart
from one day in early January, just before the Romanian central
bank delivered its first hike in its benchmark rate in a decade.
    Since then it raised rates two more times and eyes more
tightening as inflation has risen to 5-year highs, and Romanian
government bond yields have reached 4-year highs.
    New pledges from the ruling party to maintain its wage- and
pension-boosting policy are unlikely to reverse a slowdown in
economic growth to about 4 percent, while the risk of budget
overshoots remains, market participants said.
    The central bank could slow its pace of tightening, but the
next hike may come soon, Horia Braun Erdei, Erste group's chief
economist in Romania, said in a note. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1447 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7900   25.7780    -0.05%    -0.96%
 crown      >                                       
 Hungary    <EURHUF=  319.9200  319.8100    -0.03%    -2.81%
 forint     >                                       
 Polish     <EURPLN=    4.3095    4.3155    +0.14%    -3.09%
 zloty      >                                       
 Romanian   <EURRON=    4.6304    4.6300    -0.01%    +1.06%
 leu        >                                       
 Croatian   <EURHRK=    7.3930    7.3940    +0.01%    +0.50%
 kuna       >                                       
 Serbian    <EURRSD=  118.1000  118.1600    +0.05%    +0.34%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1095.03  1103.420    -0.76%    +1.56%
                                       0            
 Budapest             35566.53  35892.62    -0.91%    -9.68%
 Warsaw                2203.47   2213.26    -0.44%   -10.47%
 Bucharest             8289.38   8264.44    +0.30%    +6.91%
 Ljubljana  <.SBITOP    903.67    905.35    -0.19%   +12.07%
            >                                       
 Zagreb                1855.36   1848.73    +0.36%    +0.68%
 Belgrade   <.BELEX1    743.16    744.17    -0.14%    -2.19%
            5>                                      
 Sofia                  641.14    642.90    -0.27%    -5.36%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.9280   -0.0710   +157bps     -6bps
            R>                                      
   5-year   <CZ5YT=R    1.4330    0.0260   +164bps     +7bps
            R>                                      
   10-year  <CZ10YT=    1.9750   -0.0020   +156bps     +5bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6010   -0.0180   +224bps     +0bps
            R>                                      
   5-year   <PL5YT=R    2.4680   -0.0190   +267bps     +3bps
            R>                                      
   10-year  <PL10YT=    3.2330    0.0220   +281bps     +7bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.04      1.19      1.32      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.20      0.29      0.39      0.12
                                                    
 Poland                   1.74      1.76      1.82      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 
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