January 29, 2019 / 4:14 PM / 6 months ago

CEE MARKETS-Forint gives up ground, central bank does not turn more hawkish

    * Hungarian central bank does not take a more hawkish stance
    * Forint retreats from eight-month high vs euro and zloty
    * Romania says will not issue debt at unreasonably high
yields
    * Romanian long-term government bond yields fall, leu firms

 (Recasts with Hungarian central bank decisions, new comments,
Romanian bond yield decline)
    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, Jan 29 (Reuters) - The forint retreated
from eight-month highs against the euro and its Central European
peer the zloty on Tuesday after Hungary's central bank (NBH) did
not adopt more hawkish language after its monetary policy
meeting.
    Many market participants had expected the National Bank of
Hungary (NBH) to reinforce comments two weeks ago by Deputy
Governor Marton Nagy linking potential policy tightening to a
rise in tax-adjusted inflation, excluding food and energy
prices, to 3 percent or more. The central bank's favoured
measure of inflation, it rose to 2.9 percent in December from
2.7 percent in November.
    Instead the bank restated its commitment to a "gradual and
cautious" normalisation of monetary policy, without providing
any new clues about the timing.
    The forint traded at 317.2 versus the euro at 1456 GMT after
the central bank kept its base rate at 0.9 percent
and overnight deposit rate at -0.15 percent, as
expected. That was off an eight-month peak of 317.07 hit earlier
on Tuesday but still firmer from Monday and 2 percent up from
its level before Nagy's comments.
    Against the zloty it retreated from an
eight-month high of 73.695 to 73.806.  
    Poland's central bank has been relaxed about a decline in
headline inflation across the region in recent months, whereas
the Czech central bank is expected to raise its rates further.
    
    No change in the statement's tone only means a delay in a
likely tightening of monetary conditions in Hungary, analysts
said.
    The timing of measures will hinge on economic data, and the
bank's March inflation report may offer a good opportunity, CIB
analysts said in a note.
    "In the first stage of normalization, the NBH could
influence market interest rates by narrowing liquidity, and in
the next stage (or parallel), it can modify monetary conditions
via its interest rate corridor," they added.
    Romanian markets have been shocked by taxes on banks and
energy companies this year.
    The leu firmed 0.2 percent to 4.7575 against the euro,
drifting further off last week's record lows, helped by a
seasonal rise in interbank interest rates in the past days as a
new reserve period started for commercial banks.
    Long-term Romanian government bond yields fell about 20
basis points, reversing part of the past week's strong rise,
after Finance Minister Eugen Teodorovici said the government
would not issue debt at unreasonably high yields.
    The government scrapped an auction of 2031-expiry bonds on
Monday. Teodorovici said the government could cover six months
worth of funding.
    The outlook of Romanian assets remains uncertain as the bank
tax linked to interbank interest rates has hit trust in the
business environment and causes confusion over monetary policy,
analysts said.
    Bucharest's stock index fell further to a 2-week
low, shedding almost one percent as lender Banca Transilvania
shares stocks tested 2-and-1/2-year lows.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1556 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.7660   25.7730    +0.03%    -0.23%
 crown      >                                       
 Hungary    <EURHUF=  317.2000  317.3500    +0.05%    +1.22%
 forint     >                                       
 Polish     <EURPLN=    4.2967    4.2907    -0.14%    -0.17%
 zloty      >                                       
 Romanian   <EURRON=    4.7575    4.7681    +0.22%    -2.18%
 leu        >                                       
 Croatian   <EURHRK=    7.4250    7.4265    +0.02%    -0.20%
 kuna       >                                       
 Serbian    <EURRSD=  118.4500  118.4900    +0.03%    -0.13%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1028.08  1025.140    +0.29%    +4.21%
                                       0            
 Budapest             41205.22  41332.31    -0.31%    +5.28%
 Warsaw                2384.78   2370.62    +0.60%    +4.75%
 Bucharest             6949.24   7005.96    -0.81%    -5.88%
 Ljubljana  <.SBITOP    838.28    834.53    +0.45%    +4.23%
            >                                       
 Zagreb                1758.12   1760.28    -0.12%    +0.53%
 Belgrade   <.BELEX1    698.73    699.20    -0.07%    -8.27%
            5>                                      
 Sofia                  574.01    573.51    +0.09%    -3.44%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.8750    0.1420   +245bps    +13bps
            R>                                      
   5-year   <CZ5YT=R    1.6570   -0.0380   +199bps     -4bps
            R>                                      
   10-year  <CZ10YT=    1.7890   -0.0480   +159bps     -5bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.4990   -0.0030   +207bps     -2bps
            R>                                      
   5-year   <PL5YT=R    2.1730   -0.0260   +250bps     -3bps
            R>                                      
   10-year  <PL10YT=    2.7820   -0.0260   +258bps     -2bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.08      2.12      2.14      2.00
            <PRIBOR=                                
            >                                       
 Hungary                  0.31      0.55      0.79      0.15
                                                    
 Poland                   1.71      1.72      1.73      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 
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