September 18, 2018 / 3:11 PM / 8 months ago

CEE MARKETS-Forint sets 4-week high as central bank revamps toolkit

    * Forint hits 4-week high on Hungarian central bank comments
    * Bank revamps toolkit, says prepared for tightening if
    * Hungarian 10-year government bond yield tests 3-year high

 (Recasts with Hungarian central bank decisions and comments)
    By Sandor Peto
    BUDAPEST, Sept 18 (Reuters) - The forint jumped on Tuesday,
outperforming Central European peers as the Hungarian central
bank (NBH) revamped its toolkit and said it was prepared for
monetary tightening if needed in the future.
    The forint traded at 323.48 versus the euro at
1423 GMT, off four-week highs set earlier in the session at
322.7, but firmer by half a percent from Monday.
    The NBH kept interest rates at record lows, but said it
would phase out its monetary policy interest rate swaps and its
mortgage bond buying programme by the end of 2018.
    It retained its foreign currency swaps providing forint
liquidity and said it would adjust monetary policy by using them
in the right combination with the interest rate corridor around
its benchmark rate.
    The changes will allow the bank to act if inflation trends
make it necessary, while "the bias of monetary policy has not
changed," NBH Deputy Governor Marton Nagy told a news
    The bank's signals that it is prepared to move away from its
ultraloose policy is positive to the forint, one Budapest-based
currency dealer said.
    "We see the end of the tunnel," the dealer said.
    It will take a few more days for the market to digest
Tuesday's announcements, one Budapest-based fixed income trader
    A rise in domestic savings and expected European Union
funding inflows make a fast rise in interest rates unlikely,
Takarekbank analyst Gergely Suppan said in a statement.
    Hungary's 10-year government bonds traded at a yield of 3.68
percent, off their midday fixing of 3.73 percent
which was its second highest level in the past three years.
    Nagy also said that based on the current inflation outlook,
no interest rate change was justified until the middle of 2019,
and that bigger policy decisions could be expected on a
quarterly basis, depending on the bank's inflation report.
    The NBH did not increase its inflation forecasts in the main
figures of the September report revealed on Tuesday, despite
some expectations for a rise.
    Inflation has picked up across Central Europe in the past
    Worried over the rise, the Czech central bank is expected to
deliver its third interest rate hike in a row next week.
    The Czech crown set a 5-month high at 25.42
against the euro on Tuesday. At 1423 GMT it traded at 25.43,
firmer by 0.1 percent from Monday.
    The leu, meanwhile shed a quarter of a percent to
trade at 4.652. The zloty was a shade firmer against
the euro on the strong side of the 4.3 psychological line.
            CEE       SNAPSHOT   AT                         
            MARKETS             1623 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4300   25.4500    +0.08%    +0.44%
 crown      >                                       
 Hungary    <EURHUF=  323.4800  325.0000    +0.47%    -3.88%
 forint     >                                       
 Polish     <EURPLN=    4.2980    4.2982    +0.00%    -2.83%
 zloty      >                                       
 Romanian   <EURRON=    4.6520    4.6415    -0.23%    +0.60%
 leu        >                                       
 Croatian   <EURHRK=    7.4270    7.4265    -0.01%    +0.04%
 kuna       >                                       
 Serbian    <EURRSD=  118.3600  118.3400    -0.02%    +0.12%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1090.87  1092.080    -0.11%    +1.18%
 Budapest             36000.04  35819.90    +0.50%    -8.58%
 Warsaw                2229.20   2210.99    +0.82%    -9.43%
 Bucharest             8228.16   8170.91    +0.70%    +6.12%
 Ljubljana  <.SBITOP    854.99    850.03    +0.58%    +6.03%
 Zagreb                1800.34   1792.47    +0.44%    -2.31%
 Belgrade   <.BELEX1    729.32    724.46    +0.67%    -4.01%
 Sofia                  629.86    627.84    +0.32%    -7.02%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5260    0.0270   +206bps     +2bps
   5-year   <CZ5YT=R    1.7720    0.0010   +191bps     -2bps
   10-year  <CZ10YT=    2.1940    0.0220   +171bps     +0bps
   2-year   <PL2YT=R    1.6060   -0.0260   +214bps     -4bps
   5-year   <PL5YT=R    2.5470   -0.0060   +269bps     -2bps
   10-year  <PL10YT=    3.2520    0.0270   +277bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.92      2.11      2.22      1.55
 Hungary                  0.61      0.83      1.07      0.21
 Poland                   1.76      1.79      1.83      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Richard Balmforth)
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