November 20, 2018 / 10:20 AM / 6 months ago

CEE MARKETS-Forint tracks euro easing as Hungarian central bank meets

    * CEE currencies track retreat of euro on Italian budget
    * Czech crown hits multi-month lows vs euro and forint
    * Polish bank scandal seen weighing on zloty -analysts

    By Sandor Peto
    BUDAPEST, Nov 20 (Reuters) - The forint weakened as
expectations for hawkish comments from the Hungarian central
bank's meeting on Tuesday did not offset worries over Italy's
tension over its 2019 budget with Brussels.
    Italian government bond yields rose to a one-month high
, souring sentiment in European markets.
    Hungarian bonds did not track the sell-off, but the euro's
 resulting retreat weakened Central European currencies
through buying of the dollar.
    The forint initially gained against the euro,
approaching three-month highs, helped by some expectation that
the central bank would cite a rise in inflation and suggest
future rate tightening, while holding rates at record lows.

    When the euro retreated after strengthening for over a week,
the forint also changed direction.
    By 0923 GMT it had eased 0.1 percent, in tandem with the
zloty and the leu, trading at 321.72 against
the euro.
    "Inflation (at 3.8 percent in October in annual terms) is
still within the (2-4 percent) target. They may want a strong
year-end forint, but they also want more lending (in the
economy)," one Budapest-based currency dealer said. "So I do not
think that they will refer to interest rate increases."
    The forint has been supported by Central Europe's robust
economic growth, Hungary's trade surpluses and hopes for
upgrades in the country's sovereign credit rating.
    Dollar buying amid Federal Reserve rate hikes caused
repeated forint and zloty weakening this year, and recently the
crown joined them despite four straight interest rate
hikes by the Czech central bank.
    Against the forint, the crown reached its
weakest level in almost six months.
    Pressure on the crown is unlikely to ease for the rest of
the year as Czech economic growth lagged behind its regional
peers in the third quarter, Raiffeisen analysts said in a note.
    It is also under pressure from seasonal euro buying by banks
that cut crown deposits at the end of the year to reduce
payments into the state-run "Resolution Fund", the note added.
    The zloty could remain under pressure because a corruption
scandal "may seriously undermine confidence amongst foreign
investors in country's financial industry if not thoroughly
investigated," Rabobank said in a note.
    The head of the financial markets regulator KNF, Marek
Chrzanowski, stepped down a week ago after the owner of Getin
Noble Bank, Leszek Czarnecki, accused him of trying to
extract a multi-million-dollar bribe from him. Chrzanowski
denies the accusations.
            CEE       SNAPSHOT   AT                         
            MARKETS             1023 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   26.0800   26.0280    -0.20%    -2.06%
 crown      >                                       
 Hungary    <EURHUF=  321.7200  321.3000    -0.13%    -3.36%
 forint     >                                       
 Polish     <EURPLN=    4.3370    4.3320    -0.12%    -3.70%
 zloty      >                                       
 Romanian   <EURRON=    4.6675    4.6640    -0.07%    +0.26%
 leu        >                                       
 Croatian   <EURHRK=    7.4245    7.4275    +0.04%    +0.08%
 kuna       >                                       
 Serbian    <EURRSD=  118.2000  118.2700    +0.06%    +0.25%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1068.17  1079.180    -1.02%    -0.93%
 Budapest             39118.74  39323.01    -0.52%    -0.66%
 Warsaw                2182.46   2189.73    -0.33%   -11.33%
 Bucharest             8540.50   8566.30    -0.30%   +10.15%
 Ljubljana  <.SBITOP    817.07    817.66    -0.07%    +1.33%
 Zagreb                1744.08   1747.23    -0.18%    -5.36%
 Belgrade   <.BELEX1    743.90    744.87    -0.13%    -2.09%
 Sofia                  584.08    592.68    -1.45%   -13.78%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.6230    0.1230   +228bps    +14bps
   5-year   <CZ5YT=R    1.8430    0.0050   +208bps     +2bps
   10-year  <CZ10YT=    2.0660    0.0000   +171bps     +2bps
   2-year   <PL2YT=R    1.5870   -0.0160   +224bps     +0bps
   5-year   <PL5YT=R    2.4700   -0.0040   +271bps     +2bps
   10-year  <PL10YT=    3.2360    0.0010   +288bps     +2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.22      2.36      2.46      2.00
 Hungary                  0.30      0.57      0.90      0.13
 Poland                   1.77      1.81      1.86      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Robert Muller in Prague and Marcin
Goclowski in Warsaw, editing by Larry King)
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