November 2, 2017 / 3:35 PM / a year ago

CEE MARKETS-Crown retreats after CNB signals more modest hikes ahead

    * Crown falls from 4-year high after Czech central bank rate
    * Rate hike was smaller as some bets, and unanimous decision
    * Budapest stocks hit record high on pre-earnings MOL gains
    * Kuna trades at weakest level since January

 (Recasts with Czech central bank interest rate decision and
crown reaction)
    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, Nov 2 (Reuters) - The Czech crown retreated
from a 4-year high on Thursday on surpise that the central
bank's board had agreed unanimously to a modest 25 basis point
rate hike and an outlook which pointed to fewer than expected
rate hikes ahead.
    Although the crown extended gains from a 4-year
high against the euro after the CNB decision to raise its key
two-week deposit rate to 0.5 percent, it fell sharply after the
CNB said its seven-member board made the decision unanimously.
    Some investors had expected a bigger, 50 bp hike or at least
dissent on the size, because some central bankers have talked
about a bigger step.
    At 1425 GMT the crown traded at 25.69 against the euro,
weaker by half a percent from Wednesday.
    CNB Governor Jiri Rusnok said after the meeting that he saw
no obstacle to further rate hikes at any upcoming meeting. 
    He also said that the bank's updated forecasts expected
further firming of the crown, and he added that the current
exchange rate was close to earlier assumptions.
    Crown volatility increased because the monetary policy
outlook was not as hawkish as some might have expected, Generali
Investments CEE chief economist Radomir Jac said.
    He said the currency could firm past 25.5 in a sustainable
way only early next year, even though the sound Czech economy
and the prospect of rate hikes supported its story.
    "But the CNB indicates that it will maintain a cautious
approach to interest rate hikes, as it is aware of the rising
gap between monetary policy interest rates in the Czech Republic
and in the euro zone," he added.  
    While expectations for rate hikes have been a key factor
strengthening the crown, it has also been supported by economic
data showing healthy growth in economic output, similar to other
economies in Central Europe.
    The Czech economy is seen remaining robust even though the
election winner ANO may need to form a minority government after
being shunned by other parties.
    While the CNB needs to fight inflation, which is above its 2
percent target, the key risk to the crown is how the central
bank manages interest rate hike expectations, analysts have
    Elsewhere in Central Europe, the forint and the
zloty changed little, more or less tracking the
euro/dollar cross.
    Equities were mixed. Budapest's main index hit a new
record high, boosted by an over 2 percent rise in the shares of
oil group MOL which analysts expect to report good
third-quarter earnings on Friday.
               CEE MARKETS  SNAPSH   AT  1525 CET         
                            Latest  Previo  Daily   Change
                            bid     close   change  in
 Czech crown                25.690  25.573  -0.45%   5.13%
                                 0       5          
 Hungary                    311.00  310.83  -0.05%  -0.70%
 forint                         00      50          
 Polish zloty               4.2355  4.2376   +0.05   3.98%
 Romanian leu               4.5975  4.6030   +0.12  -1.36%
 Croatian                   7.5300  7.5215  -0.11%   0.33%
 Serbian                    118.80  118.92   +0.10   3.83%
 dinar                          00      00       %  
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            Latest  Previo  Daily   Change
                                    close   change  in
 Prague                     1064.4  1067.7  -0.31%   +15.4
                                 0       1              9%
 Budapest                   40067.  39611.   +1.15   +25.2
                                13      64       %      0%
 Warsaw                     2509.6  2524.9  -0.61%   +28.8
                                 0       0              3%
 Bucharest                  7811.1  7790.3   +0.27   +10.2
                                 1       3       %      5%
 Ljubljana                  793.22  796.92  -0.46%   +10.5
 Zagreb                     1867.1  1874.4  -0.39%  -6.40%
                                 7       9          
 Belgrade                   727.66  732.12  -0.61%   +1.43
 Sofia                      669.85  670.90  -0.16%   +14.2
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
   2-year                    0.408   0.125   +116b   +12bp
                                                ps       s
   5-year                    0.805   0.089   +115b   +9bps
   10-year                   1.571   0.001   +120b   +0bps
   2-year                    1.635    0.01   +238b   +1bps
   5-year                    2.702    0.03   +305b   +3bps
   10-year                   3.478    0.03   +310b   +3bps
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
 Czech Rep             <PR    0.89    1.07    1.21       0
 Hungary               <BU    0.09    0.12    0.14    0.03
 Poland                <WI    1.78  1.8325  1.9225    1.73
 Note: FRA     are for ask                                
 quotes        prices                               
0 : 0
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