February 23, 2018 / 10:08 AM / a year ago

CEE MARKETS-Hungary's forint drifts near two-month low as FX weaken

    PRAGUE, Feb 23 (Reuters) - Hungary's forint drifted near a
two-month low on Friday as weakened risk appetite and a loose
monetary policy outlook weighed on central Europe.
    Hungarian rate setters meet next Tuesday and are widely
expected to leave borrowing costs at record lows, a trend that
should last into 2019. Polish interest rates, too, are likely to
stick at all-time lows throughout this year.

    Despite solid economic growth, the dovish outlook is
weighing on the respective currencies at a time when U.S.
interest rates are rising. Tightening is happening also in
central European neighbours the Czech Republic and Romania.
    At 0930 GMT, the forint bid 0.1 percent lower
against the euro at 312.99. The Czech crown and
Romanian leu were flat.
    "As the National Bank of Hungary pursues the loosest
monetary policy, the trend points towards a weaker forint in the
medium to longer term," a local dealer said.
    While keeping rates anchored, the Hungarian bank has
launched new swap tenders and started purchasing mortgage bonds,
looking to prevent a widening of yields spreads relative to euro
zone levels to stimulate borrowing.
    Markets will watch particularly whether the bank makes any
comment on long-term government bond yields. The curve has
steepened this month, ticking up 9 basis points on 5-year paper
but by more than 60 basis points on the 10-year maturity. 
    Meanwhile, the forint has dropped 1 percent while the Polish
zloty has lost half a percent in choppy trade in that
time. The zloty edged up less than 0.1 percent on Friday, to
4.175 to the euro.
    Jobless data in Poland, showing the unemployment rate
ticking up from near-record lows last month, did little to deter
the outlook on rates or help the zloty. Coupled with investors
pulling back from risk, pressure is likely to continue.
    "The currency could test its weakest levels this year (of
4.20 to the euro) before it returns to a longer-term
appreciation trend," Bank Pekao said in a note.
    The crown has not been immune to weakening in the region but
could return faster to its appreciation trend. 
    Investors, though, have shown little will to push it
stronger and add to its region-leading 0.9 percent rise this
year now that the central bank looks to be in no hurry to lift
interest rates in the coming months. 
    The bank was the first in Europe to begin tightening last
year and delivered a third rate hike earlier this month but
signalled the next move would only come later this year.
            CEE MARKETS          SNAPSHOT     AT  1039 CET                        
                                 Latest      Previous       Daily     Change
                                 bid         close          change    in 2018
 Czech                              25.3200        25.3180    -0.01%        +0.88%
 Hungary                           312.9900       312.7500    -0.08%        -0.66%
 Polish                              4.1748         4.1783    +0.08%        +0.04%
 Romanian                            4.6550         4.6560    +0.02%        +0.53%
 Croatian                            7.4390         7.4425    +0.05%        -0.12%
 Serbian                           117.8600       118.0600    +0.17%        +0.54%
 Note:      calculated from                                 1800 CET              
                                 Latest      Previous       Daily     Change
                                             close          change    in 2018
 Prague                             1106.99      1108.3000    -0.12%        +2.67%
 Budapest                          38254.37       38643.99    -1.01%        -2.85%
 Warsaw                             2416.63        2410.69    +0.25%        -1.81%
 Bucharest                          8309.66        8290.73    +0.23%        +7.17%
 Ljubljana                           809.51         813.66    -0.51%        +0.39%
 Zagreb                             1817.62        1823.49    -0.32%        -1.37%
 Belgrade                            757.61         756.86    +0.10%        -0.29%
 Sofia                               688.92         687.83    +0.16%        +1.69%
                                 Yield       Yield          Spread    Daily
                                 (bid)       change         vs Bund   change in
 Czech                                                                spread
   2-year                            0.6070        -0.0070   +113bps         +1bps
   5-year                            1.0660         0.0100   +102bps         +3bps
   10-year                           1.7980        -0.0330   +112bps         -1bps
   2-year                            1.6650        -0.0590   +219bps         -4bps
   5-year                            2.6770        -0.0200   +263bps         +0bps
   10-year                           3.4270        -0.0180   +275bps         +1bps
            FORWARD              RATE        AGREEMENT                            
                                 3x6         6x9            9x12      3M interbank
 Czech Rep                             0.97           1.09      1.25          0.91
 Hungary                               0.07           0.11      0.19          0.02
 Poland                                1.76           1.78      1.86          1.72
 Note: FRA  are for ask prices                                                    

 (Reporting by Jason Hovet in Prague, Krisztina Than in Budapest
and Marcin Goettig in Warsaw; For related news and prices, click
on the codes in brackets:; All emerging market news       
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