January 10, 2018 / 4:42 PM / 2 years ago

CEE MARKETS-Weak dollar helps zloty though central bank keeps loose stance

    * Dollar retreat buoys zloty vs euro, but it is near 2-week
    * Polish central bank retains loose policy stance as
    * Polish govt reshuffle, Czech confidence vote ignored in

 (Adds Polish central bank rate decision and comments)
    By Sandor Peto and Pawel Florkiewicz
    BUDAPEST/WARSAW, Jan 10 (Reuters) - A weaker dollar helped
the zloty firm on Wednesday even though the Polish central bank
(NBP) reaffirmed its loose policy stance after its meeting as
expected, keeping interest rates on hold.
    Its Governor Adam Glapinski reiterated that he saw no need
for a change in rates this year, adding that they may stay on
hold even after 2018.
    Those comments were not a surprising as December inflation
figures were benign.
    The zloty, instead of weakening, firmed 0.15 percent against
the euro by 1541 GMT, to 4.1766.
    It benefitted from dollar selling after a report that China
was ready to slow or halt its U.S. treasury purchases. Central
European government bonds followed a rise in U.S. bond yields.
    Central Europe's most liquid currencies have tracked the
dollar's movements this year. Dollar weakness helped the zloty
hit a 2-1/2-year high on Friday.
    Erste analyst Katarzyna Rzentarzewska said the NBP could
bring forward rate hikes if demand driven by wages and a tight
labour market starts to boost inflation from the middle of 2018.
    "We currently see the possibility of the first rate hike in
the fourth quarter of 2018, if inflation expectations keep
increasing and overshooting of inflation target becomes highly
likely," she said in a note.
    A surge in wages has fuelled a rebound in inflation in the
region since 2016, but so far only the Czech and the Romanian
central banks have started to raise rates from record-low
    The Romanian bank's (NBR) first hike in a decade, delivered
on Tuesday, gave a short-lived lift to the leu, but its comments
indicating leniency on some weakness sent the currency lower.
    It consolidated on Wednesday, trading at 4.641 against the
euro, up 0.1 percent.
    The crown eased slightly after Czech National Bank
Governor Jiri Rusnok said he expected at least two more rate
hikes by 25 basis points each this year, and December data
showed 2.4 percent annual inflation, in line with forecasts. 
    New Czech Prime Minister Andrej Babis, battling allegations
his business empire illegally tapped EU subsidies a decade ago,
looks certain to lose a parliamentary confidence vote on
    His party is still likely to retain power, and politics
rarely influence Czech markets anyway.
    Polish markets also remained unaffected by political
    New Prime Minister Mateusz Morawiecki fired several senior
ministers and visited Brussels on Tuesday in an effort to patch
up relations with the EU, but said he would not unwind the
most-contested judicial reforms.
    ING analysts said "the change in the position of the head of
the Ministry of Foreign Affairs and the Minister of the
Environment may signal a desire to mitigate conflicts with the
European Union."
            CEE       SNAPSHOT   AT                         
            MARKETS             1641 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5700   25.5500    -0.08%    -0.11%
 crown      >                                       
 Hungary    <EURHUF=  309.3200  309.5700    +0.08%    +0.52%
 forint     >                                       
 Polish     <EURPLN=    4.1766    4.1830    +0.15%    -0.01%
 zloty      >                                       
 Romanian   <EURRON=    4.6410    4.6470    +0.13%    +0.83%
 leu        >                                       
 Croatian   <EURHRK=    7.4495    7.4475    -0.03%    -0.26%
 kuna       >                                       
 Serbian    <EURRSD=  118.7000  118.7100    +0.01%    -0.17%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1101.73  1104.480    -0.25%    +2.19%
 Budapest             39614.96  39869.56    -0.64%    +0.60%
 Warsaw                2508.80   2528.38    -0.77%    +1.93%
 Bucharest             8031.13   8034.76    -0.05%    +3.58%
 Ljubljana  <.SBITOP    818.42    813.90    +0.56%    +1.49%
 Zagreb                1857.69   1859.99    -0.12%    +0.80%
 Belgrade   <.BELEX1    767.53    770.64    -0.40%    +1.02%
 Sofia                  697.93    688.11    +1.43%    +3.02%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.6400    0.0970   +126bps    +10bps
   5-year   <CZ5YT=R    0.9210    0.0140   +111bps     +1bps
   10-year  <CZ10YT=    1.7100    0.0620   +124bps     +5bps
   2-year   <PL2YT=R    1.6140   -0.0260   +223bps     -2bps
   5-year   <PL5YT=R    2.5820   -0.0050   +278bps     -1bps
   10-year  <PL10YT=    3.3300    0.0190   +286bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.03      1.20      1.33      0.76
 Hungary                  0.09      0.15      0.21      0.03
 Poland                   1.75      1.78      1.88      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Robert Muller in Prague; Editing by
Toby Chopra)
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