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CEE MARKETS-Forint rebounds as Hungary ends rate-cutting cycle
May 24, 2016 / 2:41 PM / a year ago

CEE MARKETS-Forint rebounds as Hungary ends rate-cutting cycle

* Forint up from 4-1/2-month low, Hungary ends rate cuts
    * Zloty rebounds, EU allows time to tackle rule-of-law
worries

 (Recasts with Hungarian central bank decision and comments, EU
comments on Poland)
    By Sandor Peto
    BUDAPEST, May 24 (Reuters) - The forint rebounded from
multi-month lows on Tuesday, outperforming Central European
peers, after Hungary's central bank ended its interest rate cut
cycle.
    The currency sank to its weakest level since Jan. 12 on
Monday despite Fitch granting Hungary its first investment grade
rating since 2012, as that lifted investors' expectations of
deeper monetary easing than was forecast.
    But on Tuesday the bank cut its base rate by 15 basis points
(bps) as predicted in a Reuters poll of analysts and said
inflation and economic trends pointed towards holding the new
0.9 percent level for a sustained period. 
    The forint firmed 0.4 percent from its previous
close against the euro to 315.65 by 1336 GMT, compared with
Monday's low of 317.85.
    Government bond yields rose 3-4 bps from levels before the
statement, but changed little from Monday.
    "Now we expect (central bank) interest rates ... to stay on
hold until the end of next year, while the role of interbank
interest rates (BUBOR) as a guidance could strengthen,"
Takarekbank analyst, Gergely Suppan, said in a note. 
    Bonds might get a boost if Moody's also upgrades Hungary's
rating in a review in July, market players have said.
    The Budapest Stock Exchange's main index rose 0.9
percent, lifted by OTP Bank whose shares gained 1.9
percent.
    Elsewhere in the region, the zloty was flat,
trading at 4.438 versus the euro.
    In early trade, it hit a 3-1/2-month low at 4.4575 as
tensions flared between Warsaw and Brussels about the rule of
law in Poland. 
    But later the EU's executive said that for now it would not
escalate its investigation into whether rule of law was under
threat in Poland.  
    Raiffeisen analysts who had predicted the end of the
Hungarian rate cut cycle said in a note that "in comparison to
PLN (zloty) we would see more short-term recovery potential for
the HUF (forint)".  
    The dinar was flat at 122.81 against the euro
after the Serbian central bank revised its forecast for economic
growth to 2.25-2.5 percent from 1.8 percent, citing rising
investments and exports. 
    The bank has Central Europe's highest interest rate at 4.25
percent but it refrained from cutting rates last month as it was
concerned that possible Federal Reserve rate hikes could make
emerging market assets relatively less attractive.   
    
         CEE        SNAPSHOT   AT  1536 CET          
         MARKETS                                
                    CURRENCIES                       
                    Latest    Previous  Daily   Chang
                                                e
                    bid       close     change  in
                                                2016
 Czech               27.0250   27.0310   +0.02  -0.10
 crown                                       %      %
 Hungar             315.6500  316.9650   +0.42  -0.32
 y                                           %      %
 forint                                         
 Polish               4.4380    4.4385   +0.01  -4.06
 zloty                                       %      %
 Romani               4.5082    4.5140   +0.13  0.24%
 an leu                                      %  
 Croati               7.4960    7.4955  -0.01%  1.91%
 an                                             
 kuna                                           
 Serbia             122.8100  122.7800  -0.02%  -1.09
 n                                                  %
 dinar                                          
 Note:   calculate  previous  close at  1800         
 daily   d from                         CET     
 change                                         
                    STOCKS                           
                    Latest    Previous  Daily   Chang
                                                e
                              close     change  in
                                                2016
 Prague               875.90    874.83   +0.12  -8.41
                                             %      %
 Budape             26607.41  26368.25   +0.91   +11.
 st                                          %    23%
 Warsaw              1831.79   1818.97   +0.70  -1.47
                                             %      %
 Buchar              6412.79   6385.89   +0.42  -8.45
 est                                         %      %
 Ljublj               707.59    709.05  -0.21%   +1.6
 ana                                               4%
 Zagreb              1708.54   1698.81   +0.57   +1.1
                                             %     2%
 Belgra  <.BELEX15    622.87    621.59   +0.21  -3.30
 de      >                                   %      %
 Sofia                439.18    438.64   +0.12  -4.71
                                             %      %
                    BONDS                            
                    Yield     Yield     Spread  Daily
                    (bid)     change    vs      chang
                                        Bund    e in
 Czech                                          sprea
 Republ                                         d
 ic                                             
         <CZ2YT=RR    -0.001    -0.005   +050b   +0bp
 2-year  >                                  ps      s
         <CZ5YT=RR     0.145    -0.002   +050b   +1bp
 5-year  >                                  ps      s
         <CZ10YT=R      0.52     0.005   +034b   +1bp
 10-yea  R>                                 ps      s
 r                                              
 Poland                                              
         <PL2YT=RR     1.597     0.003   +210b   +0bp
 2-year  >                                  ps      s
         <PL5YT=RR     2.348     0.009   +270b   +2bp
 5-year  >                                  ps      s
         <PL10YT=R     3.094     0.015   +292b   +2bp
 10-yea  R>                                 ps      s
 r                                              
         FORWARD    RATE      AGREEMENT              
                    3x6       6x9       9x12    3M
                                                inter
                                                bank
 Czech           <      0.28      0.24    0.23      0
 Rep     PRIBOR=>                               
 Hungar          <      0.93       0.9    0.93   1.07
 y       BUBOR=>                                
 Poland          <      1.66      1.63     1.6   1.67
         WIBOR=>                                
 Note:   are for                                     
 FRA     ask                                    
 quotes  prices                                 
 ****************************************************
 **********
 
 (Additional reporting by Jakub Iglewski in Warsaw; Editing by
Louise Ireland)

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