October 16, 2018 / 3:17 PM / 9 months ago

CEE MARKETS-Forint sets two-month high on gold reserves

    * Hungarian central bank boosts gold reserves
    * CEE currencies and shares supported by European equities
    * Hungarian central bank sees no change in inflation outlook
    * Oil poses inflation risks in Hungary and Poland -Citi

 (Adds Hungarian central bank rate decision)
    By Sandor Peto
    BUDAPEST, Oct 16 (Reuters) - The forint hit a two-month high
against the euro on Tuesday after the National Bank Hungary
 said it would increase its gold reserves.   
    The bank kept interest rates on hold at its meeting and did
not provide markets with any hawkish signals.
    Central Europe's most liquid currencies -- the forint and
Poland's zloty -- and equities were also supported by a rebound
of European stocks after heavy losses. 
    The Budapest and Warsaw stock indices rose
by 1.35 percent.  
    The forint set a two-month high at 321.7 against
the euro after the NBH said it planned a tenfold rise in its
gold reserves.
    The currency then retreated, dropping to 322.05 by 1355 GMT,
 after the central bank kept Hungary's record low interest rates
on hold. The forint was still up 0.2 percent from Monday.
    The zloty, meanwhile, gained 0.1 percent and the
Czech crown eased slightly in tandem with the Romanian
    The NBH said a pick-up in annual headline inflation to 3.6
percent in September did not change the inflation outlook and
that it remained prepared for future monetary tightening.
    As the NBH keeps short-term interest rates near zero, a rise
in long-term yields, driven by surging U.S. Treasuries yields
and concerns over inflation, made Hungary's government debt
yield curve the steepest in at least 14 years by last week.
    The spread between the yield on three-month Treasury bills
and 10-year bonds widened on Tuesday after some narrowing in
recent days.
    The short-term yield slipped further into negative territory
at an auction, while the 10-year yield rose to 3.9 percent in
the secondary market, against Monday's 3.88 percent fixing.
    The recent curve steepening was partly caused by concern
that the bank might not give up its loose monetary stance in
time to tackle rising inflation.
    CIB analysts said the NHB could keep its base rate on hold
at 0.9 percent through this year and next but may start to
tighten liquidity in domestic markets from early next year.
    Hungary and Poland are among the emerging economies with
inflation most at risk from rising oil prices, Citi analysts
said in a note.
    Forward deals in both countries have priced in a rise in
interest rates in both countries next year, but mainly for
Hungary, while Polish markets do not reflect the real size of 
inflation risks yet, the note said.
    "Markets don't seem prepared for upside inflation surprises
in Poland," Citi said.
    Poland's 10-year bond yield dropped 3 basis points to 3.2
percent, widening Hungary's yield advantage. Poland's credit
rating was upgraded by Standard & Poor's on Friday.
            CEE       SNAPSHOT   AT                         
            MARKETS             1555 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8280   25.8130    -0.06%    -1.11%
 crown      >                                       
 Hungary    <EURHUF=  322.0500  322.6000    +0.17%    -3.46%
 forint     >                                       
 Polish     <EURPLN=    4.2885    4.2918    +0.08%    -2.62%
 zloty      >                                       
 Romanian   <EURRON=    4.6665    4.6621    -0.09%    +0.28%
 leu        >                                       
 Croatian   <EURHRK=    7.4155    7.4155    +0.00%    +0.20%
 kuna       >                                       
 Serbian    <EURRSD=  118.0600  118.2800    +0.19%    +0.37%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1085.24  1081.070    +0.39%    +0.66%
 Budapest             37058.37  36564.15    +1.35%    -5.89%
 Warsaw                2199.43   2170.05    +1.35%   -10.64%
 Bucharest             8534.78   8441.69    +1.10%   +10.07%
 Ljubljana  <.SBITOP    818.27    829.19    -1.32%    +1.47%
 Zagreb                1775.29   1779.92    -0.26%    -3.67%
 Belgrade   <.BELEX1    731.14    738.45    -0.99%    -3.77%
 Sofia                  610.31    610.75    -0.07%    -9.91%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5840   -0.0130   +218bps     -2bps
   5-year   <CZ5YT=R    1.8740    0.0180   +198bps     +3bps
   10-year  <CZ10YT=    2.1830    0.0180   +170bps     +4bps
   2-year   <PL2YT=R    1.5720   -0.0210   +217bps     -2bps
   5-year   <PL5YT=R    2.5330   -0.0090   +264bps     +1bps
   10-year  <PL10YT=    3.2240   -0.0120   +274bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.05      2.24      2.37      1.76
 Hungary                  0.45      0.75      1.09      0.17
 Poland                   1.76      1.79      1.87      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by David Goodman)
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