January 9, 2018 / 11:05 AM / a year ago

CEE MARKETS-Leu eases despite rate hike, dollar rebound weighs

    * Leu rises, then retreats after rate hike
    * Romanian c.bank comments on leu weaken currency
    * Dollar buying pushes CEE currencies lower

    By Sandor Peto and Radu-Sorin Marinas
    BUDAPEST/BUCHAREST, Jan 9 (Reuters) - The leu eased on
Tuesday despite the Romanian central bank's (NBR) interest rate
hike, along with other Central European currencies which were
knocked lower by the dollar's rebound in global markets.
    The NBR delivered its first rate hike in a decade on Tuesday
to fight inflation which it said could rise above its target in
the next months.
    Raising its benchmark rate by a quarter point to 2 percent,
the NBR became the second central bank in the region after its
Czech counterpart to start normalising its record-low interest
    The hike initially helped the leu and flattened the curve of
Romanian government bond yields.
    The currency retreated after NBR Governor Mugur Isarescu
said a range of 5-6 percentage points for its moves would be
sustainable, without giving more details.
    "But he did not specify what was the reference point," one
Bucharest-based dealer said. "So, in light of these we could
believe that there's some space for more downward move towards
4.67 (against the euro), maybe."
    The leu eased 0.2 to 4.6575 against the euro by 0959 GMT,
off Friday's two-month highs of 4.6066 and drifting closer to
record lows set in the last session of 2017 at 4.68.
    A 29 percent annual rise in Romania's January-November trade
deficit underpinned concerns that the economy is overheating.
    Neighbouring Hungary's own trade figures, meanwhile, showed
a bigger-than-expected surplus. The good trade and current
account performance is seen supporting the forint this
year despite the Hungarian central bank's continuing monetary
stimulus to the economy.
    But on Tuesday the Hungarian currency eased by 0.1 percent
against the euro, while the zloty shed 0.2 percent.
    The region's currencies had a strong start to the year as
investors sold the dollar in global markets, with the zloty
rising to a 2-and-1/2-year high on Friday. But Central European
units have retreated this week as the dollar regained some
    "The negative correlation with the dollar continues to
work," one Budapest-based currency trader said. "Friday's U.S.
CPI data will be very important."
    While the Fed and the European Central Bank are seen moving
towards tighter policies in the coming years, not all Central
European monetary authorities are on board.
    After mild December inflation figures, Polish central bank
Governor Adam Glapinski is expected to reiterate after a meeting
of the bank on Wednesday that rates could remain unchanged all
this year.
    A Reuters poll of analysts showed last week that the Czech
crown could gain 2.4 percent against the euro this
year, and the forint and the zloty about one percent.

            CEE       SNAPSHOT   AT                         
            MARKETS             1059 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.5200   25.5500    +0.12%    +0.09%
 crown      >                                       
 Hungary    <EURHUF=  309.2500  308.8600    -0.13%    +0.54%
 forint     >                                       
 Polish     <EURPLN=    4.1777    4.1704    -0.17%    -0.03%
 zloty      >                                       
 Romanian   <EURRON=    4.6575    4.6500    -0.16%    +0.48%
 leu        >                                       
 Croatian   <EURHRK=    7.4490    7.4425    -0.09%    -0.25%
 kuna       >                                       
 Serbian    <EURRSD=  118.4500  118.5400    +0.08%    +0.04%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1107.10  1108.920    -0.16%    +2.68%
 Budapest             40078.03  40104.03    -0.06%    +1.78%
 Warsaw                2553.06   2548.61    +0.17%    +3.73%
 Bucharest             8015.31   7982.75    +0.41%    +3.37%
 Ljubljana  <.SBITOP    810.93    807.89    +0.38%    +0.56%
 Zagreb                1859.19   1861.57    -0.13%    +0.89%
 Belgrade   <.BELEX1    765.25    767.70    -0.32%    +0.72%
 Sofia                  690.31    688.88    +0.21%    +1.90%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.6860    0.0760   +130bps     +8bps
   5-year   <CZ5YT=R    0.9590    0.0660   +117bps     +6bps
   10-year  <CZ10YT=    1.6730    0.0260   +124bps     +2bps
   2-year   <PL2YT=R    1.6340    0.0200   +225bps     +2bps
   5-year   <PL5YT=R    2.5410    0.0160   +275bps     +1bps
   10-year  <PL10YT=    3.2730    0.0360   +284bps     +3bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Hungary                  0.03      0.06      0.10      0.00
 Poland                   1.75      1.78      1.88      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto; Editing by Raissa Kasolowsky)
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