March 26, 2019 / 11:02 AM / 3 months ago

CEE MARKETS-Forint recoups losses on bets for central bank tightening

    * Forint reverses fall as central bank to hold news
    * NBH may increase o/n deposit rate, announce liquidity cut
    * Hungarian bonds tread water after rally, eyes on NBH

    By Sandor Peto
    BUDAPEST, March 26 (Reuters) - The forint regained early
losses after the Hungarian central bank (NBH) said it would a
hold a news conference following its meeting on Tuesday,
boosting speculation it could start to increase interest rates
from record lows.
    The NBH has been regarded as one of the most dovish central
banks this decade, but started to gradually shift towards more
hawkish rhetoric last year.
    Its interest rates are still at record lows and real
interest rates in Hungarian markets are among the lowest in the
world, pushed deep into negative by a rise in inflation.    
    But the forint has become Central Europe's best
performing currency this year.
    In the two months since the middle of January, it has surged
almost 4 percent to 11-month highs at 312.65 versus the euro.
    It has been boosted by expectations a rise in the NBH's core
inflation measures above 3 percent, the midpoint of its target
range, would prompt monetary tightening at the bank's March
meeting, where it will also discuss its quarterly inflation
    Those expectations were knocked back in the past week by
global economic growth worries, expectations for a Federal
Reserve rate cut and a delay in euro zone monetary tightening.
    On Tuesday, the forint eased towards Monday's one-month lows
of 317.09, but recovered after the NBH said Governor Gyorgy
Matolcsy and Deputy Governors Marton Nagy and Laszlo Windisch
would hold a news conference at 1400 GMT.
    At 1035 GMT, the forint traded at 316 versus the euro,
slightly firmer on the day. Hungarian government bonds were
treading water after a 30 basis point drop in yields in the past
    ING analyst Peter Virovacz said he retained his forecast
that the bank would keep its base rate on hold, announce a minor
rise in its -0.15 percent overnight deposit rate at 1300 GMT and
some tightening in liquidity in forint markets in its statement
at 1400 GMT.
    "Such a strong show-up of top officials would not be
justified if they just want to backtrack," he said.
    Virovacz said he expected a "dovish hike", with the bank
explaining that risks abounded looking forward including
domestic and euro zone economic developments.
    Dealers said the bank was skating on thin ice, and needed to
defend the credibility of its inflation targeting policy.
    If it fails to convince investors, the forint could weaken
further given the shift in Hungary's current account to a
deficit from a surplus towards the end of last year. 
    "If they do nothing ... the forint could head towards 320,"
one Budapest-based currency dealer said.

            CEE       SNAPSHOT   AT                         
            MARKETS             1135 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.7700   25.7510    -0.07%    -0.24%
 crown      >                                       
 Hungary    <EURHUF=  316.0000  316.1500    +0.05%    +1.61%
 forint     >                                       
 Polish     <EURPLN=    4.2950    4.2927    -0.05%    -0.13%
 zloty      >                                       
 Romanian   <EURRON=    4.7565    4.7556    -0.02%    -2.15%
 leu        >                                       
 Croatian   <EURHRK=    7.4150    7.4175    +0.03%    -0.07%
 kuna       >                                       
 Serbian    <EURRSD=  117.8800  117.9800    +0.08%    +0.36%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1080.18  1076.330    +0.36%    +9.49%
 Budapest             42015.14  41605.17    +0.99%    +7.35%
 Warsaw                2318.64   2312.79    +0.25%    +1.85%
 Bucharest             7998.87   7954.29    +0.56%    +8.33%
 Ljubljana  <.SBITOP    877.38    871.83    +0.64%    +9.09%
 Zagreb                1795.99   1793.30    +0.15%    +2.70%
 Belgrade   <.BELEX1    731.04    730.16    +0.12%    -4.02%
 Sofia                  581.04    582.80    -0.30%    -2.26%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.8130   -0.1130   +237bps    -12bps
   5-year   <CZ5YT=R    1.7780   -0.0060   +220bps     -2bps
   10-year  <CZ10YT=    1.8620    0.0110   +188bps     +1bps
   2-year   <PL2YT=R    1.6920   -0.0650   +225bps     -8bps
   5-year   <PL5YT=R    2.1990   -0.0020   +262bps     -1bps
   10-year  <PL10YT=    2.8520   -0.0040   +287bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.12      2.15      2.14      2.02
 Hungary                  0.38      0.52      0.67      0.13
 Poland                   1.74      1.74      1.74      1.72
 Note: FRA  are for ask prices                              

 (Reporting by Sandor Peto; Editing by Mark Potter)
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