June 26, 2019 / 2:07 PM / a year ago

CEE MARKETS-Crown creeps higher after Czech bank retains neutral outlook

    * Czech central bank keeps rates on hold, retains neutral
    * Crown bucks easing of forint and zloty on dollar rebound
    * Crown is off 9-month highs reached on technical factors
    * Dovish ECB signals play key role in CEE central bank

 (Recasts, with Czech central bank decision and comments)
    By Sandor Peto and Robert Muller
    BUDAPEST/PRAGUE, June 26 (Reuters) - The crown bucked a
weakening of other Central European currencies on Wednesday as
the Czech central bank retained its neutral rate outlook, not
following recent dovish signals from the U.S. Federal Reserve
and the European Central Bank.
    The forint and the zloty shed 0.2%
against the euro by 1330 GMT.
    They weakened as investors bought the dollar after a
Federal Reserve official tempered expectations for aggressive
monetary easing.
    Earlier expectations for deeper Fed rate cuts and last
week's dovish comments from the European Central Bank were
positive for currencies in Central Europe.
    Some market participants had expected dovish signals from
the Czech central bank (CNB) at a news conference after a
meeting on Wednesday.
    Governor Jiri Rusnok said the CNB continued to watch signals
from abroad, but said rates could stay unchanged for a
relatively long period and that the bank's stance was neutral.

    One of the seven rate setters even voted for a rate rise.
    The crown traded at 25.47 to the euro, a tad firmer than
Tuesday's close but still near a nine-month high of 25.435
reached late on Tuesday.
    Domestic factors pushed some central banks in the region
into tighter policies as economies in the region grow faster
than euro zone peers, and strong wage growth has boosted
consumer prices.
    Dovish policy signals from the ECB, however, suggest that
prices of imports from the euro zone could slow and help
moderate inflation pressure in Central Europe.    
    The National Bank of Hungary (NBH) cited those signals after
its meeting on Tuesday as a justification for keeping rates on
hold despite a rise in annual inflation to near the top of its
2-4% target range, while it said it would continue to watch
incoming economic data.
    Some liquidity tightening by the bank and a hike in its
-0.05% overnight interest rate into positive territory remains
likely in September, KBC analysts said in a note.
    "It is quite clear that the NBH's next move will be even
more dependent on the ECB's action and they want to keep the low
interest environment as long as possible," they said.
    Hungary's 10-year government bond yield was fixed 5 basis
points higher at 2.66%, reflecting a smaller rise in
the corresponding U.S. and German yields.
            CEE       SNAPSHOT   AT                         
            MARKETS             1530 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.4700   25.4780    +0.03%    +0.93%
 crown      >                                       
 Hungary    <EURHUF=  323.6000  322.9500    -0.20%    -0.78%
 forint     >                                       
 Polish     <EURPLN=    4.2626    4.2545    -0.19%    +0.63%
 zloty      >                                       
 Romanian   <EURRON=    4.7235    4.7199    -0.08%    -1.47%
 leu        >                                       
 Croatian   <EURHRK=    7.3950    7.3975    +0.03%    +0.20%
 kuna       >                                       
 Serbian    <EURRSD=  117.7600  117.8400    +0.07%    +0.46%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1034.14  1040.050    -0.57%    +4.82%
 Budapest             40221.19  40061.95    +0.40%    +2.77%
 Warsaw                2314.66   2303.31    +0.49%    +1.67%
 Bucharest             8655.51   8594.90    +0.71%   +17.22%
 Ljubljana  <.SBITOP    887.83    890.23    -0.27%   +10.39%
 Zagreb                1902.38   1905.02    -0.14%    +8.78%
 Belgrade   <.BELEX1    724.06    722.28    +0.25%    -4.94%
 Sofia                  576.77    575.34    +0.25%    -2.98%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5490    0.0760   +229bps     +8bps
   5-year   <CZ5YT=R    1.3540    0.0600   +201bps     +5bps
   10-year  <CZ10YT=    1.5210   -0.0250   +184bps     -4bps
   2-year   <PL2YT=R    1.5790    0.0070   +232bps     +1bps
   5-year   <PL5YT=R    1.9420    0.0130   +259bps     +0bps
   10-year  <PL10YT=    2.3540    0.0360   +268bps     +3bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.17      2.06      1.96      2.17
 Hungary                  0.32      0.43      0.54      0.25
 Poland                   1.73      1.73      1.71      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Alexandra Hudson and Susan Fenton)
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