November 12, 2018 / 10:58 AM / 6 months ago

CEE MARKETS-Leu bucks regional decline as CPI drops less than expected

    * Romanian CPI falls but less than forecast
    * Leu bucks CEE fall on dollar buying caused by Brexit worry
    * Romanian bond yields edge higher after CPI data
    * Romanian central bank holds repo auction, decent bond sale

    By Sandor Peto
    BUDAPEST, Nov 12 (Reuters) - The leu bucked a dollar-driven
weakening of Central European currencies on Monday after data
showed Romanian inflation declined less than expected in
    The forint and the zloty fell 0.1
percent against the euro by 0939 GMT, in thin trade with Polish
markets closed for holiday. The Czech crown touched a four-month
low at 25.974.
    They weakened because investors bought dollars amid doubts
that Britain will be able to secure a deal on quitting the
European Union next year.
    The impact in the region was muted relative to the dollar's
 gains, even though Britain is an important trade partner
and a key destination for millions of Central Europeans who
moved West for higher wages.
    "One week they say this, the other week they say that (about
Brexit)," one Budapest-based currency dealer said. "Let's see
the end."
    The leu traded higher against the euro at 4.6577
at 0939 GMT, near the six-week highs it reached on Friday.
    Romania's annual inflation rate fell to 4.3 percent in
October from 5 percent in September. It was
forecast to fall to 4.1 percent.
    The decline was less than the Romanian central bank had
hoped for. Last week, it sounded optimistic that inflation could
retreat to the top of its 1.5-3.5 percent target range soon,
Erste analyst Eugen Sinca said in a note.
    "Under these circumstances, we do not rule out a hike in the
(bank's 2.5 percent) policy rate at beginning of 2019," he said.
    Even before the data, Raiffeisen said in a note that the
decline in inflation could help some further decline in Romanian
government bond yields, because the central bank was unlikely to
keep raising interest rates before the second half of 2019.
    But yields rose by a few basis points after the figures,
with two-year debt bid at 3.77 percent, up 2 basis points.
    That followed a drop of 30 to 40 basis points along the
Romanian yield curve in recent weeks amid hopes for lower
inflation and higher real yields and liquidity injections from
the NBR. 
    The bank announced a repo auction for Monday. This could be
the third straight week when it pumps money into interbank
markets. Injections have supported demand for government bond
    An auction of a new seven-year paper on Monday could also
draw decent demand, though the inflation data may deter some
players or push the yield a touch higher, ING analysts said in a
            CEE       SNAPSHOT   AT                         
            MARKETS             1039 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9400   25.9400    +0.00%    -1.53%
 crown      >                                       
 Hungary    <EURHUF=  321.8200  321.4000    -0.13%    -3.39%
 forint     >                                       
 Polish     <EURPLN=    4.2960    4.2920    -0.09%    -2.79%
 zloty      >                                       
 Romanian   <EURRON=    4.6577    4.6584    +0.02%    +0.47%
 leu        >                                       
 Croatian   <EURHRK=    7.4270    7.4269    -0.00%    +0.04%
 kuna       >                                       
 Serbian    <EURRSD=  118.1700  118.3000    +0.11%    +0.28%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1086.70  1089.080    -0.22%    +0.79%
 Budapest             38539.47  38586.63    -0.12%    -2.13%
 Warsaw                2232.25   2232.25    +0.00%    -9.30%
 Bucharest             8670.09   8657.22    +0.15%   +11.82%
 Ljubljana  <.SBITOP    815.45    811.93    +0.43%    +1.12%
 Zagreb                1781.29   1786.19    -0.27%    -3.34%
 Belgrade   <.BELEX1    744.56    744.56    +0.00%    -2.01%
 Sofia                  597.04    597.76    -0.12%   -11.87%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5070    0.0130   +215bps     +3bps
   5-year   <CZ5YT=R    1.8460    0.0230   +205bps     +5bps
   10-year  <CZ10YT=    2.1030   -0.0060   +172bps     +2bps
   2-year   <PL2YT=R    1.5660    0.0000   +221bps     +2bps
   5-year   <PL5YT=R    2.4580    0.0000   +266bps     +3bps
   10-year  <PL10YT=    3.2350    0.0000   +285bps     +3bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.05      2.20      2.35      1.99
 Hungary                  0.33      0.61      0.97      0.16
 Poland                   1.76      1.80      2.05      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Luiza Ilie in Bucharest, editing by
Larry King)
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