March 19, 2018 / 10:31 AM / 3 months ago

CEE MARKETS-Zloty eases ahead of Fed, output growth below forecasts

    * Zloty leads mild CEE fx easing ahead of likely Fed rate
hike
    * Polish industrial output rises less than forecast, PPI
drops
    * Czech central banker sees rate hikes to continue
    * Shares of OTP Bank fall, Romania blocks its acquisition
deal

    By Sandor Peto and Anna Wlodarczak
    BUDAPEST/WARSAW, March 19 (Reuters) - The zloty eased on
Monday after weaker-than expected February manufacturing growth
and a fall in producer prices underpinned that Polish interest
rates could stay at record lows this year.
    Low rates in Central Europe's flagship economy contrast with
an expected further hike in Federal Reserve interest rates, and
likely hawkish comments at its March 20-21 meeting.
    Rising U.S. rates make assets in Poland and elsewhere in the
region relatively less attractive.
    In a Reuters poll this month, analysts projected gains for
the Czech crown, the forint and the zloty in the next 12 months,
fuelled by robust economic growth and expected monetary
tightening to fight rebounding inflation.
    But since then, most of the region's countries reported a
retreat in inflation for February. The Polish central bank also
lowered its inflation forecasts two weeks ago.
    February annual figures released on Monday showed that
annual industrial output growth remained strong, at 7.4 percent,
but below analysts' median forecast of 8.1 percent, while the
producer price index fell 0.2 percent.
    The zloty touched a new 3-month low against the
euro, and at 0926 GMT it traded at 4.22, down 0.13 percent,
easing more then other regional currencies.
    Any impact on the zloty from the figures could be limited as
they did not change monetary policy prospects, said Andrzej
Kaminski, economist at Millennium Bank.
    "In our view, due to rising labor costs, the MPC (Monetary
Policy Council) will raise the cost of money in the second half
of 2019, as wages and inflation will be growing faster than
assumed in the (central bank's) projection," he said.
    The crown eased only a shade, to 25.4230, still
off last week's two-month lows of 25.5.
    Czech inflation also retreated in February, but Czech
central bank governor Jiri Rusnok has said there was still room
to raise interest rates further.
    On Sunday he said a hike could come late this year or in
early 2019, or earlier if inflation becomes brisker.

    The region's central banks diverge in monetary policy.
Serbia's central bank cut rates last week to stem a firming of
the dinar.
    The currency bucked the regional trend on Monday, gaining a
quarter of a percent to 118.11 versus the euro, after Serbia
confirmed its interest in a new deal with the International
Monetary Fund on Friday.
    Stocks mostly eased in the region, led by Budapest,
knocked lower by a retreat of OTP Bank from a
one-month high after Romania's central bank torpedoed OTP's
takeover of Banca Romaneasca. 
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1026 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4230   25.4200    -0.01%    +0.47%
 crown      >                                       
 Hungary    <EURHUF=  310.9500  310.7200    -0.07%    -0.01%
 forint     >                                       
 Polish     <EURPLN=    4.2200    4.2145    -0.13%    -1.03%
 zloty      >                                       
 Romanian   <EURRON=    4.6670    4.6650    -0.04%    +0.27%
 leu        >                                       
 Croatian   <EURHRK=    7.4290    7.4325    +0.05%    +0.02%
 kuna       >                                       
 Serbian    <EURRSD=  118.1100  118.4100    +0.25%    +0.33%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1118.38  1118.520    -0.01%    +3.73%
                                       0            
 Budapest             38539.66  38891.24    -0.90%    -2.13%
 Warsaw                2269.78   2285.08    -0.67%    -7.78%
 Bucharest             8780.79   8816.96    -0.41%   +13.25%
 Ljubljana  <.SBITOP    825.09    823.14    +0.24%    +2.32%
            >                                       
 Zagreb                1841.53   1843.11    -0.09%    -0.07%
 Belgrade   <.BELEX1    749.71    748.78    +0.12%    -1.33%
            5>                                      
 Sofia                  677.31    679.98    -0.39%    -0.02%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.8810    0.0860   +146bps     +9bps
            R>                                      
   5-year   <CZ5YT=R    1.3190    0.0480   +135bps     +4bps
            R>                                      
   10-year  <CZ10YT=    1.9440    0.0140   +137bps     +1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5250    0.0040   +211bps     +1bps
            R>                                      
   5-year   <PL5YT=R    2.4100   -0.0050   +244bps     -1bps
            R>                                      
   10-year  <PL10YT=    3.2520    0.0010   +268bps     -1bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                0.96      1.06      1.22      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.10      0.18      0.03
                                                    
 Poland                   1.71      1.74      1.76      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 
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