September 18, 2018 / 9:47 AM / 3 months ago

CEE MARKETS-Forint firms marginally, central bank may signal tightening

    * Forint outperforms CEE peers as Hungarian central bank
meets
    * Bank seen holding rates, but may tweak swap tool-analysts
    * Hungarian yields edge up, no further big rise is
seen-trader

    By Sandor Peto
    BUDAPEST, Sept 18 (Reuters) - Hungarian government bond
yields edged slowly higher and the forint firmed marginally on
Tuesday as the Hungarian central bank (NBH) holds a policy
meeting which may give some details of future monetary
tightening.
    The forint traded at 324.74 against the euro at
0908 GMT, firmer by less than 0.1 percent, while its main
Central European peers -- the Czech crown, the leu
 and the zloty -- eased about 0.1 percent. 
    Inflation has picked up in the fast-growing region in the
past months, leading to a further increase in Czech interest
rates and a temporary shift towards a less dovish tone in the
NBH's language at its June meeting.
    Hungary's annual inflation ran at 3.4 percent in August,
still within the NBH's 2-4 percent target range.
    Inflation risks increased when a global rally of the dollar
knocked the forint to record lows beyond 330 versus the euro by
July, and the NBH signalled that it no longer expected loose
monetary conditions to remain through its policy horizon of 5-8
quarters. It did not repeat this message in July and August.
    Pressure on the currency has eased since then and analysts
said the bank probably did not want big movements from the
current range in either direction.
    In a Reuters poll, analysts unanimously predicted that the
bank would keep both its 0.9 percent base rate and -0.15 percent
overnight deposit rate on hold when it announces its rates
decision at 1200 GMT. 
    But several analysts noted that a likely rise in the bank's
forecasts in its quarterly inflation report would offer a peg
for the bank to spell out some details of future monetary
tightening.
    They said it was likely to refrain from fuelling bets for a
rise at the short end of the yield curve, which could boost the
forint.
    But it may tweak its monetary policy interest rate swap
instrument (MIRS) which has provided liquidity to banks for
buying long-term government bonds.
    Hungary's 10-year benchmark bond yield reached 2-1/2-month
highs on Monday. Early on Tuesday it traded at 3.65 percent, up
2 basis points from Monday's fixing.
    "I do not think, though, that a tweak in the MIRS tool would
cause an upheaval," one Budapest-based fixed income trader said,
adding that the bank had planned to end the instrument at the
end of the year anyway.
    Polish and Czech government bonds were mixed and rangebound.
    Equities were also mixed. Warsaw's bluechip index
jumped 1.1 percent, rebounding from Monday's 8-week lows, driven
by bank stocks.
    In Prague, Moneta Money Bank shares rose around
1.5 percent, on track for its biggest daily move in seven weeks,
on Tuesday after it raised its profit and dividend outlook for
this year following the sale of a package of bad loans.

            CEE       SNAPSHOT   AT                         
            MARKETS             1108 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4600   25.4500    -0.04%    +0.32%
 crown      >                                       
 Hungary    <EURHUF=  324.7400  325.0000    +0.08%    -4.26%
 forint     >                                       
 Polish     <EURPLN=    4.3021    4.2982    -0.09%    -2.92%
 zloty      >                                       
 Romanian   <EURRON=    4.6465    4.6415    -0.11%    +0.71%
 leu        >                                       
 Croatian   <EURHRK=    7.4250    7.4265    +0.02%    +0.07%
 kuna       >                                       
 Serbian    <EURRSD=  118.1500  118.3400    +0.16%    +0.30%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1096.19  1092.080    +0.38%    +1.67%
                                       0            
 Budapest             35726.40  35819.90    -0.26%    -9.27%
 Warsaw                2236.01   2210.99    +1.13%    -9.15%
 Bucharest             8186.44   8170.91    +0.19%    +5.58%
 Ljubljana  <.SBITOP    851.29    850.03    +0.15%    +5.57%
            >                                       
 Zagreb                1798.26   1792.47    +0.32%    -2.42%
 Belgrade   <.BELEX1    724.09    724.46    -0.05%    -4.70%
            5>                                      
 Sofia                  627.48    627.84    -0.06%    -7.38%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.5110    0.0120   +206bps     +1bps
            R>                                      
   5-year   <CZ5YT=R    1.8130    0.0420   +198bps     +5bps
            R>                                      
   10-year  <CZ10YT=    2.1690   -0.0030   +172bps     +1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6220   -0.0100   +217bps     -1bps
            R>                                      
   5-year   <PL5YT=R    2.5550    0.0020   +272bps     +1bps
            R>                                      
   10-year  <PL10YT=    3.2410    0.0160   +279bps     +3bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.92      2.11      2.22      1.55
            <PRIBOR=                                
            >                                       
 Hungary                  0.57      0.79      1.04      0.21
                                                    
 Poland                   1.77      1.80      1.83      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 
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