January 8, 2019 / 3:25 PM / 9 months ago

CEE MARKETS-Romanian assets ease on tax worries, central bank warning

    * Leu eases after weak German data
    * Romanian central bank holds fire, warns over tax package
    * Romanian equity index declines, bucking European rise

 (Recasts with Romanian central bank decision and comments,
analyst quotes)
    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, Jan 8 (Reuters) - Romanian assets fell
on Tuesday amid worries over a package of government measures to
boost revenues, with the central bank saying they created
uncertainty in the economy.
    The leu shed 0.2 percent against the euro to
4.6695 by 1439 GMT.
    It fell in tandem with the region's main currencies and 
tracked a decline by the euro, after November industrial output
data showed a decline in Germany, Central Europe's main export
market, and a slowdown in Czech and Hungarian growth.
    But Romanian shares did not follow a rebound in European and
regional markets, as hopes of a possible trade deal between
China and the United States offset worries over global growth.
    The Bucharest exchange's blue-chip index fell 1.7
percent. Budapest and Prague each gained about half
a percent.
    In recent days, Romanian stocks regained some of the losses
they suffered in December. Stocks fell after the government
announced taxes that hit banks and energy, among others, and
changes in pension rules that could weaken domestic demand for
equities and government debt. 
    The worries resurfaced by Tuesday, before the Romanian
central bank's meeting. The bank kept interest rates on hold, as
expected -- inflation has slowed in recent months and the
economy is expected to slow.
    The bank's governor, Mugur Isarescu, said after the meeting
that inflation may fall further, but risks are amplified by
fiscal policy, and that the measures -- which included a tax on
bank assets linked to interbank interest rates -- hurt monetary
policy flexibility, if not independence.
    He said the bank had trouble understanding part of the
measures and would seek a meeting with the finance minister.
    "A key question in 2019 is how the NBR would respond to
potential weakening pressure on the leu coming from twin (budget
and current account) deficits and exacerbated by government’s
preference for low interest rates," said Erste Group analyst
Eugen Sinca in a note.
    "We continue to favor the scenario of a modest depreciation
of the leu (2-3 percent), with the exchange rate potentially
playing the role of a relief valve..." he said.
            CEE       SNAPSHOT   AT                         
            MARKETS             1539 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6380   25.5750    -0.25%    +0.27%
 crown      >                                       
 Hungary    <EURHUF=  321.7000  321.2000    -0.16%    -0.19%
 forint     >                                       
 Polish     <EURPLN=    4.2992    4.2960    -0.07%    -0.22%
 zloty      >                                       
 Romanian   <EURRON=    4.6695    4.6600    -0.20%    -0.33%
 leu        >                                       
 Croatian   <EURHRK=    7.4330    7.4255    -0.10%    -0.31%
 kuna       >                                       
 Serbian    <EURRSD=  118.3000  118.3500    +0.04%    +0.00%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1013.99  1008.560    +0.54%    +2.78%
 Budapest             40737.92  40569.47    +0.42%    +4.09%
 Warsaw                2326.47   2331.45    -0.21%    +2.19%
 Bucharest             7554.26   7683.07    -1.68%    +2.31%
 Ljubljana  <.SBITOP    806.41    802.32    +0.51%    +0.27%
 Zagreb                1738.76   1726.78    +0.69%    -0.57%
 Belgrade   <.BELEX1    718.24    731.79    -1.85%    -5.70%
 Sofia                  575.70    577.15    -0.25%    -3.16%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.6910    0.0620   +227bps     +5bps
   5-year   <CZ5YT=R    1.7470    0.0140   +203bps     +0bps
   10-year  <CZ10YT=    1.8240    0.0390   +159bps     +2bps
   2-year   <PL2YT=R    1.4510   -0.0290   +203bps     -4bps
   5-year   <PL5YT=R    2.3010    0.0190   +259bps     +1bps
   10-year  <PL10YT=    2.8430    0.0490   +261bps     +3bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.09      2.19      2.21      2.01
 Hungary                  0.30      0.54      0.79      0.13
 Poland                   1.74      1.75      1.77      1.72
 Note: FRA  are for ask prices                              

 (Reporting by Sandor Peto, editing by Larry King)
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