April 11, 2018 / 9:16 AM / 3 months ago

CEE MARKETS-Currencies ease, Poland seen retaining loose monetary policy

    * Rouble, lira woes moderately weigh on forint, zloty
    * Polish cbank seen reiterating: rates could stay low for
years
    * Polish long-term yields lowest since autumn 2016

    By Sandor Peto
    BUDAPEST, April 11 (Reuters) - The zloty and the forint
eased on Wednesday as a fall of the rouble and the Turkish lira
caused currency selling in emerging markets, while investors
expected a dovish message from the Polish central bank's (NBP)
rate-setting meeting.
    Assets in Central Europe, a region integrated into the
European Union, rarely join jitters in other emerging markets,
as they are protected by healthy fundamentals and a strong
growth outlook.
    In currency markets, the main regional proxies are the
liquid zloty and forint.
    Their reaction to the rouble's and the lira's slide this
week, caused by a new round of U.S. sanctions against Russia and
monetary policy concerns in Turkey, has been moderate.
    The equity indices of the region's main bourses rose by
0.2-0.3 percent.
    Hungary's OTP Bank, which generates almost 10
percent of its income from Russia, rose half a percent, after
shedding 4 percent relative to Friday's close by Tuesday.
    "The selling ... was overdone. Based on the rouble's
exchange rate movement, maximum one percent depreciation would
have been justified," Erste analysts said in a note. 
    The Polish and Hungarian currencies, backed by healthy
economic growth, eased by 0.1 percent against the euro by 0824
GMT.
    The zloty, trading at 4.191, stayed near the 5-week highs it
reached on Tuesday. The forint gets additional support from the
re-election of Prime Minister Viktor Orban's Fidesz party on
Sunday, which investors believe ensures policy continuity and
cuts unceertainty. Orban pledged a curb on the budget deficit
and debt on Tuesday.
    Inflation readings have been mild in the region this year
after a surge in 2016 and 2017.
    After a surprise decline in Polish annual inflation to 1.3
percent in March, the NBP is expected to repeat its message that
interest rates could stay at record lows for years.
    While the same message from Hungary's central bank has won
credit in markets, in the case of Poland some analysts still
expect a shift towards hawkish rhetoric late this year.
    Polish government bonds did not reflect this, with 5- and
10-year papers bid at their lowest yields since autumn 2016. The
10-year yield dipped below the 3 percent psychological level, to
2.97 percent.
    The Czech ministry of finance increased the amount of its
offer at the bond auction it holds on Wednesday.
    "We are eager to see whether the real money demand is still
that strong as both yields drop and ASW (asset swap) tightening
seems to be somewhat on an overdone side," Komercni Banka said
in a note.
    Hungary's 10-year government bond yield was steady after
dropping about 15 basis points following Orban's landslide
election victory.
    "Thursday's auctions could be smoothly sold despite the
lower yields levels," one trader said.          
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1024 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=    0.0000   25.3130  #DIV/0!   #DIV/0!
 crown      >                                       
 Hungary    <EURHUF=  311.5300  311.1300    -0.13%    -0.20%
 forint     >                                       
 Polish     <EURPLN=    4.1910    4.1868    -0.10%    -0.35%
 zloty      >                                       
 Romanian   <EURRON=    4.6605    4.6565    -0.09%    +0.41%
 leu        >                                       
 Croatian   <EURHRK=    7.4270    7.4275    +0.01%    +0.04%
 kuna       >                                       
 Serbian    <EURRSD=  118.0900  118.2200    +0.11%    +0.35%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1128.15  1125.020    +0.28%    +4.64%
                                       0            
 Budapest             38005.49  37882.42    +0.32%    -3.48%
 Warsaw                2279.38   2274.81    +0.20%    -7.39%
 Bucharest             8871.89   8841.74    +0.34%   +14.42%
 Ljubljana  <.SBITOP    833.22    829.92    +0.40%    +3.33%
            >                                       
 Zagreb                1814.07   1811.97    +0.12%    -1.56%
 Belgrade   <.BELEX1    739.33    737.07    +0.31%    -2.69%
            5>                                      
 Sofia                  665.75    664.75    +0.15%    -1.73%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.8080   -0.0110   +137bps     -1bps
            R>                                      
   5-year   <CZ5YT=R    1.1820   -0.0210   +126bps     -1bps
            R>                                      
   10-year  <CZ10YT=    1.7800   -0.0080   +128bps     +0bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5130   -0.0090   +208bps     -1bps
            R>                                      
   5-year   <PL5YT=R    2.2470   -0.0350   +233bps     -3bps
            R>                                      
   10-year  <PL10YT=    2.9960   -0.0420   +249bps     -3bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                0.95      1.07      1.21      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.10      0.18      0.03
                                                    
 Poland                   1.74      1.73      1.76      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 
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