June 27, 2018 / 8:58 AM / 9 months ago

CEE MARKETS-Forint hits record low, rate hike bets buoy Czech crown

    * CNB meets, Czech crown firms on bets bank will hike rates
    * Forint hits record low vs both the euro and the crown
    * Forint is weak even though Hungarian cbank changed
    * Hungarian bonds, IRSs, FRAs stabilise despite forint fall

    By Sandor Peto
    BUDAPEST, June 27 (Reuters) - The crown firmed, hitting
record highs against the falling forint, buoyed by expectations
that the Czech central bank (CNB) would increase interest rates
further at its meeting on Wednesday.
    A hike would be the fourth in the tightening cycle which
started last August to fight a rise in inflation, and would come
before the next inflation report due in August.
    Eight of 14 analysts in a Reuters poll expected the bank to
wait for the closely-watched report before deciding on a hike.

    But many market participants believe a weakening of the
crown in tandem with Central European peers in the past two
months and a regional pick-up in inflation could lead to a rate
hike as early as Wednesday.
    Positioning ahead of the decision, due at 1100 GMT, lifted
the crown to a peak of 25.844 against the euro in early trade,
before it retreated to 25.86 by 0805 GMT, still firmer by a
quarter of a percent from Tuesday.
    "Odds for resumption of rate hikes already today (are)
elevated mainly due to relatively weak CZK FX," Raiffeisen
analyst Stephan Imre said in a note.
    "That said the CNB could already resume rate hikes today,
i.e. earlier than anticipated by us," he added.
    It was still near the eight-month lows reached at 25.99 last
week, and much weaker than the 25.2 level predicted by the CNB
for the second quarter, adding to inflation pressure.    
    Meanwhile, a record high it set against the forint
 on Wednesday highlighted a difference in monetary
policy with the Hungarian central bank (NBH).
    A rally in the dollar and U.S. yields in the past two months
caused a repricing of assets in emerging markets and Hungary's
forint and government bond were the hardest-hit in Central
Europe due to the NBH's ultraloose policy.
    The NBH last week shifted to a less dovish rhetoric, saying
that loose monetary conditions were unlikely to prevail until
the end of its policy horizon of 5-8 quarters.
    But investors continued to sell the forint, which reached a
record low against the euro as well by 0829 GMT.
    Hungarian government bond yields, after a rally in the past
months, did not rise further, and interest rate swaps and
forward rate agreements also stabilised.
    "We are waiting for the BUBOR (interbank rate) fixings at
0900 GMT, and if the rate does not rise further, bond yields may
even start to retreat," one Budapest-based fixed income trader
    Government bond yields mostly dropped slightly across
Europe, including Czech papers.
    The prospect of further Czech rate hikes supports bonds as
it keeps alive expectations for a strengthening of the crown in
the next months, Raiffeisen's Imre said, adding that "we
continue see significant value in CZGBs (Czech bonds)". 
            CEE       SNAPSHOT   AT                         
            MARKETS             1005 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8600   25.9200    +0.23%    -1.23%
 crown      >                                       
 Hungary    <EURHUF=  326.7200  325.6500    -0.33%    -4.84%
 forint     >                                       
 Polish     <EURPLN=    4.3297    4.3330    +0.08%    -3.54%
 zloty      >                                       
 Romanian   <EURRON=    4.6555    4.6620    +0.14%    +0.52%
 leu        >                                       
 Croatian   <EURHRK=    7.3785    7.3815    +0.04%    +0.70%
 kuna       >                                       
 Serbian    <EURRSD=  117.7700  118.0000    +0.20%    +0.62%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1045.29  1061.490    -1.53%    -3.05%
 Budapest             35293.64  35352.03    -0.17%   -10.37%
 Warsaw                2143.01   2153.40    -0.48%   -12.93%
 Bucharest             7962.68   7965.38    -0.03%    +2.69%
 Ljubljana  <.SBITOP    882.66    883.32    -0.07%    +9.46%
 Zagreb                1815.58   1814.03    +0.09%    -1.48%
 Belgrade   <.BELEX1    730.10    730.23    -0.02%    -3.91%
 Sofia                  630.20    631.87    -0.26%    -6.97%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.0880   -0.0030   +179bps     +1bps
   5-year   <CZ5YT=R    1.5790   -0.0300   +189bps     -1bps
   10-year  <CZ10YT=    2.1910   -0.0070   +188bps     +2bps
   2-year   <PL2YT=R    1.6480    0.0090   +235bps     +2bps
   5-year   <PL5YT=R    2.5250   -0.0170   +284bps     +1bps
   10-year  <PL10YT=    3.1910   -0.0600   +288bps     -4bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.17      1.29      1.43      0.93
 Hungary                  0.62      0.82      1.00      0.27
 Poland                   1.74      1.78      1.82      1.70
 Note: FRA  are for ask prices                              
 (Editing by Keith Weir)
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