June 18, 2018 / 9:44 AM / 10 months ago

CEE MARKETS-Forint takes breather ahead of crucial central bank meeting

    * Forint bucks CEE fx easing on dollar strength
    * Forint still near 3-year low ahead of key cbank meeting
    * Hungarian cbank seen shifting to less dovish rhetoric 

    By Sandor Peto
    BUDAPEST, June 18 (Reuters) - The forint and Hungarian
government bonds took a breather on Monday after last week's
weakening, a day before a meeting of the National Bank of
Hungary whose ultra-loose policy has come under fire as U.S.
interest rates rise.
    The dollar's strength continues to put pressure on
Central European currencies. The zloty shed 0.2
percent and the leu and the Czech crown 0.1
percent by 0913 GMT.
    The forint's easing was hardly noticeable, but
trading at 322.7 against the euro it was near the 3-year lows it
hit at 323.95 on Friday.
    Hungary's 10-year government bond yield was steady at 3.46
percent, but it stayed well above Poland's corresponding yield
which dropped 2 basis points to 3.22 percent.
    Early this year, it was more than one percentage point below
its Polish peer. Since then a global rise in debt yields has
shattered the credibility of the Hungarian central bank's goal
to keep long-term yields relatively low.
    The rise came just as Hungary boosted debt issuance to
pre-finance EU-sponsored projects and cover a 1.3-billion-euro
bond expiry a week ago, and coincided with a pick-up in
inflation in May across Central Europe.
    The NBH is due to release new inflation forecasts next week,
and they are likely to rise.
    They could stay well within the bank's 2-4 percent target
range, but the rise fuels uncertainty over the bank's targets,
market participants said.
    The bank is expected to keep its rates on hold, but a shift
in its language towards more openness to tightening is possible,
traders and analysts said.
    "The comments will be crucial," one trader said.
    The bank on Monday tightened mortgage conditions on loans
with interest rates fixed for less than 10 years, to drive
borrowers into fixed-rate loans.
    Elsewhere, the zloty was flat after new data showed a 7
percent annual rise in wages in May, a strong rate, though a tad
below expectations.
    The Polish central bank has also pledged to keep short-term
interest rates on hold at record lows for years, but had no
target for long-term yields.
    The figures are unlikely to change its commitment. Wages do
not spur inflation as Polish companies are healthy and invest to
boost efficiency and the state budget is stable, analysts said.
    The crown eased slightly to 25.735 versus the
    Czech producer prices rose at the fastest pace in five years
in May, jumping 1.0 percent month-on-month.
    This confirms that the central bank will likely move faster
than expected on interest rate hikes, possibly lifting them as
early as this month, but that has been partly priced in already.
    Czech forward rate agreements have priced in a rate hike by
September and give almost a 50 percent chance of a hike already
in June.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1113 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.7500   25.7130    -0.14%    -0.81%
 crown      >                                       
 Hungary    <EURHUF=  322.7000  322.6200    -0.02%    -3.65%
 forint     >                                       
 Polish     <EURPLN=    4.2927    4.2857    -0.16%    -2.71%
 zloty      >                                       
 Romanian   <EURRON=    4.6685    4.6640    -0.10%    +0.24%
 leu        >                                       
 Croatian   <EURHRK=    7.3790    7.3825    +0.05%    +0.70%
 kuna       >                                       
 Serbian    <EURRSD=  117.9700  118.1500    +0.15%    +0.45%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1075.08  1077.880    -0.26%    -0.29%
 Budapest             35974.28  36038.96    -0.18%    -8.64%
 Warsaw                2205.47   2203.01    +0.11%   -10.39%
 Bucharest             8220.19   8201.28    +0.23%    +6.02%
 Ljubljana  <.SBITOP    890.33    894.26    -0.44%   +10.41%
 Zagreb                1822.82   1821.36    +0.08%    -1.09%
 Belgrade   <.BELEX1    730.94    730.73    +0.03%    -3.80%
 Sofia                  628.42    627.90    +0.08%    -7.24%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.0330   -0.0330   +168bps     -4bps
   5-year   <CZ5YT=R    1.5370   -0.0020   +177bps     +1bps
   10-year  <CZ10YT=    2.1170    0.0030   +172bps     +2bps
   2-year   <PL2YT=R    1.5870    0.0070   +223bps     +0bps
   5-year   <PL5YT=R    2.4190   -0.0200   +266bps     -1bps
   10-year  <PL10YT=    3.2250   -0.0150   +283bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.17      1.32      1.45      0.93
 Hungary                  0.42      0.10      0.83      0.16
 Poland                   1.75      1.77      1.82      1.70
 Note: FRA  are for ask prices                              
 (Additional reporting by Jason Hovet in Prague/Pawel Sobczak
and Agnieszka Barteczko in Warsaw; Editing by Adrian Croft)
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