July 12, 2018 / 9:32 AM / 8 months ago

CEE MARKETS-Dinar firms, Serbian central bank seen holding fire

    * CEE currencies firm as dollar's strengthening halts
    * Serbian central bank seen keeping 3 pct main rate on hold 

    By Sandor Peto and Aleksandar Vasovic
    BUDAPEST/BELGRADE, July 12 (Reuters) - The dinar firmed
slightly as the Serbian central bank was expected to keep
interest rates on hold at its meeting on Thursday, while Central
Europe's other currencies also rose.
    The region's most liquid units, seesawing near multi-month
lows, rebounded from a Wednesday decline as a strengthening of
the dollar lost steam.
    Flows into the greenback have played a key role in a
sell-off in emerging markets including Central Europe in the
past months, and concerns over the economic impacts of a
China-U.S. trade war added to the gloom.
    Loose monetary policy in Hungary and Poland have also
weighed on their currencies, but investors have also sold the
crown even though the Czech central bank has increased its
super-low interest rates by 95 basis points in the past year. 
    On Thursday, the zloty and the crown
strengthened by 0.2 percent versus the euro by 0820 GMT, and the
forint was steady at 324.85.
    Equities mostly firmed slightly in the region. Bucharest's
, Budapest's and Prague's main stock indices rose
by around half a percent, and government bonds hardly changed.
    Serbia's dinar was bid at 117.99 against the euro,
firmer by 0.1 percent.
    Being less liquid, it has not been affected by the past
months' global jitters.
    It is buoyed by a stable economy, investment inflows and
money sent home by Serbians working abroad, and the National
Bank of Serbia (NBS) even had to sell it in the market
repeatedly in the past months to stem its strength.
    "The bank could cut rates (at Thursday's meeting), but I
don't see it happening: they tend to be conservative in decision
making," one Belgrade-based dealer said.
     The NBS has been the only central bank in the region to
reduce interest rates in the past year, but the cuts totalling
one percentage point still leaves its 3 percent benchmark rate
the highest in the region.
    Annual inflation, running at 2.1 percent in May, is well
within the bank's target range of 1.5 to 4.5 percent.
    But a one percentage point jump in May and volatility in
global markets are expected to make the NBS cautious. In a
Reuters poll, 12 analysts and dealers unanimously projected that
it would not change interest rates on Thursday. 
    "A recent spike in fuel prices and a higher inflation rate
will warrant the central bank to wait and see," said Andreas
Schwabe, analyst of Raiffeisen in a note.
    The same note said that Romanian government bonds remained
undervalued despite a fall in the past days in 5- and 10-year
yields as Romanian data showed no further rise in annual
inflation from a 5-year high of 5.4 percent in June.
    The 10-year paper's yield was bid at 5.05 percent according
to Reuters data, down 16 basis points from Wednesday.
            CEE       SNAPSHOT   AT                         
            MARKETS             1020 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9130   25.9540    +0.16%    -1.43%
 crown      >                                       
 Hungary    <EURHUF=  324.8500  324.9300    +0.02%    -4.29%
 forint     >                                       
 Polish     <EURPLN=    4.3235    4.3339    +0.24%    -3.40%
 zloty      >                                       
 Romanian   <EURRON=    4.6590    4.6600    +0.02%    +0.44%
 leu        >                                       
 Croatian   <EURHRK=    7.3930    7.3973    +0.06%    +0.50%
 kuna       >                                       
 Serbian    <EURRSD=  117.9900  118.0700    +0.07%    +0.43%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1086.30  1088.330    -0.19%    +0.75%
 Budapest             35275.11  35063.07    +0.60%   -10.42%
 Warsaw                2162.35   2154.28    +0.37%   -12.14%
 Bucharest             7931.27   7892.87    +0.49%    +2.29%
 Ljubljana  <.SBITOP    893.90    892.80    +0.12%   +10.85%
 Zagreb                1805.30   1809.68    -0.24%    -2.04%
 Belgrade   <.BELEX1    731.56    734.48    -0.40%    -3.72%
 Sofia                  626.44    624.94    +0.24%    -7.53%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.1690   -0.1000   +182bps    -10bps
   5-year   <CZ5YT=R    1.6260    0.0020   +191bps     +1bps
   10-year  <CZ10YT=    2.1920   -0.0020   +189bps     +0bps
   2-year   <PL2YT=R    1.6520    0.0150   +230bps     +2bps
   5-year   <PL5YT=R    2.5200    0.0050   +280bps     +1bps
   10-year  <PL10YT=    3.1960    0.0230   +289bps     +3bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.42      1.65      1.77      1.18
 Hungary                  0.59      0.85      1.09      0.28
 Poland                   1.73      1.75      1.83      1.70
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto; Editing by Toby Chopra)
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