January 16, 2018 / 11:01 AM / a year ago

CEE MARKETS-Leu approaches record low after Romanian PM quits

    * Leu nears record low after PM resignation
    * Ruling party meet later to decide on new candidate
    * Crown steady ahead of Czech PM confidence vote
    * Vote expected to end in defeat for Babis

    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, Jan 16 (Reuters) - The leu fell to a
two-week low against the euro, approaching record weak levels a
day after Romania's Prime Minister Mihai Tudose resigned,
becoming the second premier to be ousted in seven months.
    Tudose's Social Democrat Party (PSD) withdrew its backing
for him in an overwhelming vote on Monday. He had been embroiled
in a row with the party's powerful leader Liviu Dragnea.

    Romanian equities shed half a percent by 0944 GMT, 
underperforming Central European peers.
    Tudose's resignation does not signal a change in economic
policy but adds to Romania's political instability caused by
in-fighting and corruption scandals. The ruling party's leaders
will meet on Tuesday to discuss choices for a new prime
    President Klaus Iohannis "once more holds the wild card of
PM designation", Erste Group analyst Horia Braun-Erdei said in a
    If Iohannis were to propose his own candidate instead of
accepting the PSD's nominee, Romania could see early elections,
Braun-Erdei said.
    "The next few days will tell whether there will be a way out
of this conundrum or whether we are heading for a full-fledged
political crisis," the note said. 
    The leu eased 0.4 percent against the euro to
4.6575, slightly off the day's low of 4.661 which was close to
its end-2017 record low at 4.68.
    A surge in wages has led to worries that Romania's economy
would overheat. The Romanian central bank delivered its first
interest rate hike in a decade on Monday last week to fight a
surge in inflation.
    "The leu's reaction to the resignation seems muted," said
one trader in Bucharest. "Still, there is no reason for it to
firm and every reason for it to remain weak."
    Politics in Central Europe's fast-growing economies
generally had little influence in markets in the past year.
    Czech Prime Minister Andrej Babis's minority government is
expected to lose a confidence vote in parliament due at around
1300 GMT.
    The Czech crown was still steady at 25.518 against
the euro.
    Even if Babis loses the confidence vote, his government will
stay in office until a new one is formed and he may end up
leading any new government. 
    He requested lawmakers on Tuesday to lift his parliamentary
immunity so he can face allegations of fraud, but he remains
    Czech government bond yields were bid higher by a few basis
    The Czech finance ministry said on Monday that it would
double the maximum planned offer at Wednesday's scheduled   
auction of bonds maturing in 2023, 2028 and 2033.
                CEE         SNAPSHOT    AT                        
                MARKETS                   1044 CET                
                            Latest      Previous        Daily     Change
                            bid         close           change    in 2018
 Czech crown                25.5180     25.5250         +0.03%    +0.09%
 Hungary                    308.9500    308.9300        -0.01%    +0.64%
 Polish zloty               4.1790      4.1765          -0.06%    -0.06%
 Romanian leu               4.6575      4.6385          -0.41%    +0.48%
 Croatian kuna              7.4280      7.4325          +0.06%    +0.03%
 Serbian dinar              118.3000    118.1900        -0.09%    +0.17%
 Note: daily    calculated from                         1800 CET  
                            Latest      Previous        Daily     Change
                                        close           change    in 2018
 Prague                     1111.55     1109.0900       +0.22%    +3.10%
 Budapest                   39825.22    39579.11        +0.62%    +1.14%
 Warsaw                     2550.48     2542.65         +0.31%    +3.63%
 Bucharest                  8213.43     8254.85         -0.50%    +5.93%
 Ljubljana                  829.02      828.40          +0.07%    +2.81%
 Zagreb                     1868.07     1870.76         -0.14%    +1.37%
 Belgrade                   773.97      768.01          +0.78%    +1.86%
 Sofia                      715.16      714.31          +0.12%    +5.57%
                            Yield       Yield           Spread    Daily
                            (bid)       change          vs Bund   change in
 Czech                                                            spread
 2-year                     0.6660      0.0330          +124bps   +4bps
 5-year                     1.0050      0.0540          +113bps   +6bps
 10-year        <CZ10YT=RR  1.7610      0.0200          +119bps   +4bps
 2-year                     1.6190      0.0080          +220bps   +1bps
 5-year                     2.5880      -0.0280         +272bps   -2bps
 10-year        <PL10YT=RR  3.2610      -0.0370         +269bps   -2bps
                FORWARD     RATE        AGREEMENT                 
                            3x6         6x9             9x12      3M interbank
 Czech Rep              <P  1.04        1.21            1.34      0.76
 Hungary                <B  0.10        0.17            0.24      0.02
 Poland                 <W  1.75        1.78            1.87      1.72
 Note: FRA      are for ask prices                                
 (Additional reporting by Bartosz Chmielewski in Warsaw; Editing
by Raissa Kasolowsky)
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