March 14, 2018 / 10:20 AM / 6 months ago

CEE MARKETS-Dinar eases as Serbian central bank cuts rates, crown firms

    * Serbia cuts rates, surprising some investors
    * Dinar eases, but still near multi-year highs
    * Czech central bank chief says CPI trends still allow rate
hikes
    * Hungary's government bond auction draws robust demand

 (Recasts with Serbian central bank's interest rate cut,
Hungary's bond auction)
    By Sandor Peto and Aleksandar Vasovic
    BUDAPEST/BELGRADE, March 14 (Reuters) - The dinar eased on
Wednesday as Serbia's central bank (SRB) cut its benchmark rate
to help economic growth after data showed a retreat in inflation
in most of Central Europe.
    The 25 basis point reduction leaves its benchmark interest
rate, now 3.25 percent, the highest in the region.
    The bank said it would remain cautious because the U.S.
Federal Reserve might increase interest rates next week, cutting
appetite for assets in emerging markets like Serbia.

    Serbia's bank has been selling the dinar in recent weeks as
robust demand for Serbian government bond auctions helped the
currency hit 3-1/2 year highs against the euro.
    But some other currencies in the region were under pressure
as inflation dropped last month, triggering expectations for
slower central bank rate hikes in Prague and a delay in
tightening in Warsaw.
    Monday's Serbian data, showing a fall in annual inflation to
1.5 percent in February from January's 1.9 percent, boosted the
odds of a rate cut compared to a Reuters poll last week, in
which only one-third of analysts projected a reduction.
    After the bank delivered the cut, the dinar traded at 128.40
versus the euro, weaker by 0.1 percent.
    But one Belgrade-based dealer said the rate reduction could
boost confidence in Serbian assets instead of making them less
attractive.   
    "It  will likely bolster the dinar's exchange rate to euro,
following a brief weakening this week. This means there's still
ample room for rate cuts," the dealer added. 
    Yields on Serbia's two-year and 10-year
 government bonds were bid lower by 25-30 basis
points. 
    Elsewhere in Central Europe, the Czech crown
firmed slightly, gaining 0.2 percent against the euro, to 25.45.
    Czech inflation also retreated in February, but CNB chief
Rusnok said on Wednesday that inflation developments created
room for further interest rate rises, although loose European
Central Bank policy was a limiting factor.
    Regional currencies and stocks were mostly rangebound, as
the dollar's zigzags maintained uncertainty over risk
appetite.
    Hungary's government bonds drew healthy demand at an auction
and the government sold more papers than planned.

    Hungarian bond yields dropped 2-3 basis points from Tuesday.
    "Earlier investors priced in a very slight chance that the
ruling (Fidesz) party might lose the elections, but buyers are
coming back now," one Budapest-based fixed income trader said.
    Hungary will hold a vote on April 8.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1239 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4750   25.4910    +0.06%    +0.26%
 crown      >                                       
 Hungary    <EURHUF=  311.8200  311.8000    -0.01%    -0.29%
 forint     >                                       
 Polish     <EURPLN=    4.2081    4.2120    +0.09%    -0.75%
 zloty      >                                       
 Romanian   <EURRON=    4.6625    4.6610    -0.03%    +0.37%
 leu        >                                       
 Croatian   <EURHRK=    7.4440    7.4400    -0.05%    -0.18%
 kuna       >                                       
 Serbian    <EURRSD=  118.4000  118.3200    -0.07%    +0.08%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1122.39  1124.410    -0.18%    +4.10%
                                       0            
 Budapest             38791.51  38663.67    +0.33%    -1.49%
 Warsaw                2348.19   2353.02    -0.21%    -4.59%
 Bucharest             8618.06   8608.30    +0.11%   +11.15%
 Ljubljana  <.SBITOP    823.57    824.29    -0.09%    +2.13%
            >                                       
 Zagreb                1841.02   1849.65    -0.47%    -0.10%
 Belgrade   <.BELEX1    741.27    741.81    -0.07%    -2.44%
            5>                                      
 Sofia                  676.86    679.82    -0.44%    -0.09%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.8300    0.0740   +139bps     +8bps
            R>                                      
   5-year   <CZ5YT=R    1.3040    0.0350   +131bps     +4bps
            R>                                      
   10-year  <CZ10YT=    1.9160   -0.0070   +129bps     -1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5580   -0.0100   +212bps     -1bps
            R>                                      
   5-year   <PL5YT=R    2.5100   -0.0060   +251bps     +0bps
            R>                                      
   10-year  <PL10YT=    3.3390   -0.0100   +271bps     -2bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                0.95      1.06      1.22      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.10      0.18      0.03
                                                    
 Poland                   1.73      1.75      1.81      1.71
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Reporting by Sandor Peto
Editing by Peter Graff and Edmund Blair)
  
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