February 26, 2019 / 10:32 AM / a month ago

CEE MARKETS-Forint firms on bets for hawkish central bank hints

    * Forint firms, central bank may hint at tightening
    * Brexit delay a moderate positive to Polish bonds - analyst
    * No-deal Brexit is two-way risk to CPI-Czech rate setter
Holub

    By Sandor Peto
    BUDAPEST, Feb 26 (Reuters) - Central European currencies
firmed slightly on Tuesday amid expectations that the Hungarian
central bank (NBH) will start monetary tightening at its
meeting.
    The forint, the zloty and the leu
 firmed less than 0.1 percent against the euro, while
the MSCI emerging market currency index dropped
slightly.
    "The zloty may also be affected by the forint's reaction to
Hungarian central bank decision, which could tighten its
rhetoric," Warsaw-based Santander bank analysts said in a note.
    The NBH, which has kept interest rates at record lows since
2016, is "in a normalization phase", Governor Gyorgy Matolcsy
said at a parliamentary committee hearing on Tuesday.

    His comments, however, provided little guidance over the
bank's decision at Tuesday's meeting, dealers said.
    The forint, at 317.65, traded on the firm side of its
average in the past 30 days since deputy central bank governor
Marton Nagy talked it up, saying 3 percent or higher
tax-adjusted core inflation could trigger monetary tightening.
    The core inflation measure ticked up to 3 percent in
January, but all analysts in a Reuters poll last week predicted
no change in the bank's base rate 0.9 percent base rate and
-0.15 percent overnight deposit rate for Tuesday's meeting.
    Some analysts did not rule out a rise in the overnight rate
or a cut in the bank's fx swap facility, through which it
provides forint liquidity to the market.
    But the dominant expectations is no change, dealers said.
    "FRAs (forward rate agreements) and 2-year IRSs (interest
rate swaps) moved higher by a few basis points, but in spot
government bond yields there is no change," one Budapest-based
fixed income trader said.
    Hungary's 10-year government bonds traded at a yield of 2.66
percent, flat from Monday's fixing. 
    Poland's corresponding yield dropped by 1 basis point to
2.78 percent, after Monday's 13 basis-point jump as the ruling
Law and Justice party (PiS), preparing for elections, promised a
big increase in public spending.
    A retreat of yields is supported by expectations that
Britain's exit from the European Union (Brexit), due on March
29, will be postponed, Santander said.  
    Tomas Holub, rate setter at the Czech central bank which
will meet on March 28, said on Tuesday that Brexit without a
deal would have both inflationary and anti-inflationary effects,
and the bank should wait to see how that plays out.
 
    The comments discouraged bets for a hike at the March
meeting. The crown eased 0.1 percent to 25.66 versus the euro. 
    Central European stocks indices tracked Asian and Western
European peers lower, with Budapest shedding 0.9 percent.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1105 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6600   25.6420    -0.07%    +0.18%
 crown      >                                       
 Hungary    <EURHUF=  317.6500  317.9500    +0.09%    +1.08%
 forint     >                                       
 Polish     <EURPLN=    4.3340    4.3375    +0.08%    -1.02%
 zloty      >                                       
 Romanian   <EURRON=    4.7614    4.7655    +0.09%    -2.26%
 leu        >                                       
 Croatian   <EURHRK=    7.4260    7.4295    +0.05%    -0.22%
 kuna       >                                       
 Serbian    <EURRSD=  118.0700  118.2100    +0.12%    +0.19%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1063.05  1070.680    -0.71%    +7.75%
                                       0            
 Budapest             40630.02  40987.95    -0.87%    +3.81%
 Warsaw                2362.33   2371.69    -0.39%    +3.76%
 Bucharest             7741.50   7772.07    -0.39%    +4.85%
 Ljubljana  <.SBITOP    845.75    845.26    +0.06%    +5.16%
            >                                       
 Zagreb                1777.48   1781.52    -0.23%    +1.64%
 Belgrade   <.BELEX1    682.59    683.59    -0.15%   -10.38%
            5>                                      
 Sofia                  591.03    593.05    -0.34%    -0.58%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.8620    0.0740   +242bps     +7bps
            R>                                      
   5-year   <CZ5YT=R    1.8100    0.0050   +218bps     +0bps
            R>                                      
   10-year  <CZ10YT=    1.9100   -0.0060   +180bps     -1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6280    0.0100   +219bps     +1bps
            R>                                      
   5-year   <PL5YT=R    2.2530   -0.0130   +262bps     -1bps
            R>                                      
   10-year  <PL10YT=    2.8660   -0.0260   +276bps     -3bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.26      2.31      2.32      2.02
            <PRIBOR=                                
            >                                       
 Hungary                  0.36      0.59      0.80      0.15
                                                    
 Poland                   1.73      1.73      1.74      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
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 (Reporting by Sandor Peto, editing by Ed Osmond)
  
 
 
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