September 6, 2018 / 9:46 AM / 10 months ago

CEE MARKETS-Currencies rebound, Serbian central bank seen holding fire

    * Crown, forint, zloty rebound as dollar sags
    * Serbian central bank seen keeping rates on hold

    By Sandor Peto and Aleksandar Vasovic
    BUDAPEST/BELGRADE, Sept 6 (Reuters) - Central European
currencies and stocks mostly rebounded on Thursday as the
dollar's rise stalled ahead of a Serbian central bank meeting
that is unlikely to bring a further cut in interest rates.
    The dollar sagged while sterling jumped on a report
that Britain and Germany were prepared to drop a key sticking
point in negotiations over Britain's exit from the European
Union next year.
    Hopes that Brexit talks will not collapse is positive for
Central European countries that have hundred of thousands of
citizens working in Britain.
    But the main influence on their currencies is risk aversion,
which has been often manifested in the past months by a
strengthening of the dollar.
    With the dollar retreating, the forint continued
to drift off two-month lows near 329 versus the euro it had
reached on Wednesday. 
    At 0842 GMT it was trading at 327.47, up 0.2 percent and
outperforming the Czech crown even after data showing
Czech industrial output jumped 10.3 percent year on year in
July, more than expected, while Hungary's 6.2 percent rise was
below forecasts. 
    Monetary policy divergence in the region did not make
investors differentiate either.
    The zloty firmed a quarter of a percent versus the
euro even though the Polish central bank confirmed on Wednesday
that interest rates could stay at record lows at least until the
end of 2019, or even longer.
    The Serbian central bank is expected to keep its own
benchmark rate on hold at its meeting on Thursday, instead of
cutting it further.
    The dinar hovered around Wednesday's closing
levels. At 0842 GMT it was 0.1 percent weaker, at 118.22 against
the euro.
    The bank has repeatedly sold dinars in the market this year
to stem the currency's strength, the last time on Tuesday.

    The bank is expected to keep rates on hold throughout the
year as headline inflation could pick up and the economy power
ahead after a surprisingly strong performance in the first half
of the year, said Milan Deskar-Skrbic, an Erste analyst.
    The bank does not expect inflation to exceed 3 percent, the
mid-point of its target range in the next two years, "which
means that current monetary policy stance is adequate," he said.
    "In addition, NBS (the bank) is closely monitoring
developments on international markets, especially given the
tapering and expected end of bond purchases from the ECB and
continuation of a hawkish policy in the U.S.," he added.
    Societe Generale said in a note that currencies could weaken
further in emerging markets in the next year, and Central
European 10-year bond yields could see the biggest increase
apart from Brazil.
    "Contagion (in emerging markets) via sentiment and portfolio
de-risking is more likely than direct macro/financial
spill-overs," the note said. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1042 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7200   25.7600    +0.16%    -0.69%
 crown      >                                       
 Hungary    <EURHUF=  327.4700  328.2000    +0.22%    -5.06%
 forint     >                                       
 Polish     <EURPLN=    4.3222    4.3330    +0.25%    -3.37%
 zloty      >                                       
 Romanian   <EURRON=    4.6386    4.6360    -0.06%    +0.89%
 leu        >                                       
 Croatian   <EURHRK=    7.4360    7.4310    -0.07%    -0.08%
 kuna       >                                       
 Serbian    <EURRSD=  118.2200  118.1000    -0.10%    +0.24%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1067.56  1065.040    +0.24%    -0.98%
 Budapest             37337.69  37135.33    +0.54%    -5.18%
 Warsaw                2305.52   2295.51    +0.44%    -6.33%
 Bucharest             8339.57   8313.26    +0.32%    +7.56%
 Ljubljana  <.SBITOP    855.80    856.77    -0.11%    +6.13%
 Zagreb                1812.02   1817.70    -0.31%    -1.67%
 Belgrade   <.BELEX1    723.53    725.82    -0.32%    -4.77%
 Sofia                  628.11    628.11    +0.00%    -7.28%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.3390    0.0100   +191bps     +2bps
   5-year   <CZ5YT=R    1.7160    0.0020   +194bps     +0bps
   10-year  <CZ10YT=    2.0980   -0.0090   +171bps     -2bps
   2-year   <PL2YT=R    1.6370    0.0230   +221bps     +3bps
   5-year   <PL5YT=R    2.6100    0.0330   +284bps     +3bps
   10-year  <PL10YT=    3.2800    0.0420   +290bps     +4bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.88      2.01      2.12      1.51
 Hungary                  0.59      0.82      1.04      0.19
 Poland                   1.77      1.79      1.82      1.71
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto; Editing by Catherine Evans)
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