August 4, 2017 / 2:01 PM / a year ago

CEE MARKETS-Crown retreats as cbank seen turning dovish after rate rise

    * Czech central bank's post-hike comments were
    * Czech crown gives up almost all of post-rate-hike gains
    * Loose ECB policy discourages monetary tightening-analysts
    * Romanian central bank holds fire, lifts inflation forecast
    * MOL shares hit 6-year high after strong Q2 results

 (Adds Romanian central bank decision, governor comments)
    By Sandor Peto and Robert Muller
    BUDAPEST/PRAGUE, Aug 4 (Reuters) - The crown retreated on
Friday due to doubts that the Czech central bank (CNB) will
follow up its interest rate hike on Thursday with further
monetary tightening.
    The leu was flat as the Romanian central bank kept
interest rates on hold at its meeting.
    The Czech crown had shed 0.3 percent to 26.12
against the euro by 1332 GMT, approaching the levels it hit
before the rate hike.
    On Thursday the CNB lifted its two-week repo rate by 20
basis points to 0.25 percent, boosting the crown to 25.9, its
strongest since April when the bank removed a cap that had kept
it weaker than 27 against the euro since 2013.
    It was the first hike in the Czech Republic in more than
nine years and the first among European Union member states in
more than five years.
    Other central banks in central Europe, under less pressure
from recent inflation figures, are unlikely to follow the Czech
example this year.
    Czech inflation is above its 2 percent target, the labour
market is the tightest in the EU, and the economy is seen
growing at annual rates above 3 percent, in line with the
region. But Czech inflation is seen dipping below 2 percent
    The bank's new outlook is more dovish than before and it 
also fears hot money inflows if European Central Bank policies
remain loose, making Czech assets attractive, analysts said.
    "If the ECB postpones its first tightening, the CNB will
have no other option than to be patient too," Ceska Sporitelna
analysts said.
    The CNB's press conference on Thursday changed the outlook,
Komercni Banka dealer Dalimil Vyskovsky said, "pointing to
somewhat slower hikes from now on". 
    "Apparently the bank (is) trying to sound as dovish as
possible, once again, in our view the reason behind it being
fears of EURCZK reaction getting too strong," he added.
    The key 3-month Prague inter-bank offered rate (PRIBOR
 was fixed at 42 basis points, up 11 basis points.
    In Romania, the central bank revised its inflation forecast
upwards, but it remains within the target, Governor Mugur
Isarescu said after his bank's meeting.
    He said arguments "to take action" are piling up but a
decision cannot be made without looking at regional and European
    The only comparable country in the region for Romania in
terms of interest rates is Poland, he said.
    The Polish central bank may start considering rate hikes
next year, and Hungary in 2019, analysts have said.
    Stock markets mostly rose across the region on Friday. 
    Budapest's main index even hit a new record high,
buoyed by the shares of oil and gas group MOL, which
touched a 6-year high after the firm posted better than expected
earnings, and raised its earnings outlook for 2017.
               CEE MARKETS  SNAPSH   AT  1532 CET         
                            Latest  Previo  Daily   Change
                            bid     close   change  in
 Czech crown                26.120  26.041  -0.30%   3.40%
                                 0       0          
 Hungary                    304.55  303.90  -0.21%   1.40%
 forint                         00      50          
 Polish zloty               4.2415  4.2447   +0.08   3.83%
 Romanian leu               4.5640  4.5631  -0.02%  -0.64%
 Croatian                   7.4054  7.4065   +0.01   2.02%
 kuna                                            %  
 Serbian                    119.60  119.61   +0.01   3.14%
 dinar                          00      00       %  
 Note: daily   calculated   previo  close   1800          
 change        from         us      at      CET     
                            Latest  Previo  Daily   Change
                                    close   change  in
 Prague                     1026.4  1017.5   +0.88   +11.3
                                 8       7       %      8%
 Budapest                   36597.  36416.   +0.50   +14.3
                                54      07       %      6%
 Warsaw                     2384.0  2365.4   +0.78   +22.3
                                 0       8       %      9%
 Bucharest                  8335.0  8340.8  -0.07%   +17.6
                                 1       4              4%
 Ljubljana                  809.55  806.01   +0.44   +12.8
                                                 %      2%
 Zagreb                     1892.0  1889.9   +0.11  -5.16%
                                 0       4       %  
 Belgrade                   729.39  718.12   +1.57   +1.68
                                                 %       %
 Sofia                      719.47  720.14  -0.09%   +22.6
                            Yield   Yield   Spread  Daily
                            (bid)   change  vs      change
                                            Bund    in
 Czech                                              spread
   2-year                   -0.103  -0.103   +058b  -10bps
   5-year                    0.097   0.044   +032b   +4bps
   10-year                   0.898       0   +043b   -1bps
   2-year                    1.819  -0.013   +250b   -1bps
   5-year                    2.702   0.024   +293b   +2bps
   10-year                   3.353   0.002   +289b   -1bps
               FORWARD      RATE    AGREEMENT             
                            3x6     6x9     9x12    3M
 Czech Rep             <PR    0.54    0.62    0.71       0
 Hungary               <BU    0.21    0.25    0.31    0.15
 Poland                <WI  1.7575  1.7825  1.8575    1.73
 Note: FRA     are for ask                                
 quotes        prices                               
 (Additional reporting by Luiza Ilie in Bucharest; Editing by
Gareth Jones)
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