August 6, 2018 / 9:19 AM / a year ago

CEE MARKETS-Leu retreats as central bank surprises by keeping rates on hold

    * Dollar strength mildly weighs on CEE assets
    * Leu off Friday's 7-month high after central bank meets
    * Romanian central bank keeps rates on hold at 2.5 pct

 (Recasts with Romanian central bank decision)
    By Sandor Peto
    BUDAPEST, Aug 6 (Reuters) - The leu lost ground against the
euro on Monday after the Romanian central bank left interest
rates unchanged, disappointing some investors.
    Five out of eight analysts in a Reuters poll had predicted
that the central bank, which started to push up its main
interest rate in January, would raise it by a
quarter percentage point to 2.75 percent.
    The leu extended its early losses against the euro, trading
at 4.628 versus the euro at 0915 GMT, down 0.2 percent, after
the bank said that it would not raise rates.
    Central European currencies mostly eased as the Sino-U.S.
trade war weighed on risk appetite in global markets. But they
stayed near multi-week highs, and in the case of the leu near
Friday's seven-month highs.
    Along with the Czechs, Romania is the only economy in
Central Europe where rising inflation has led to central bank
interest rate hikes. 
    Romania's annual inflation rate, which ran at
5.4 percent in June, is the highest in the region, and is above
the central bank's target of 1.5 to 3.5 percent.    
    A high base in late 2017 is expected to help it fall
rapidly. The July reading due on Friday may already show a fall.
    The 10-year Romanian government bond yield edged up by 3
basis points after the decision, bid at 5.05 percent. The
three-month Romanian interbank ROBOR rate dropped 7
basis points to 3.09 percent, but stayed near its highest levels
in 4 1/2 years, reached on Friday.
    Elsewhere, the forint weakened by 0.2 percent and
the zloty shed a third of a percent against the euro.
The Czech crown was flat at 25.649.
    June's annual Czech figures released showed a
slower-than-expected 4.8 percent rise in retail sales, but a 3.4
percent increase in industrial output was above analysts'
    The Czech central bank is still expected to raise rates one 
more time this year, after it raised its main rate by 25 basis
points to 1.25 percent last week, Erste analyst Jan Zemlicka
said in a note.
    "In 2019, we expect two additional interest rates increases,
but again, the development will strongly depend on koruna (the
crown)," he added.
    The zloty has been helped by last week's Polish Supreme
Court ruling to suspend a controversial law to overhaul the
judiciary system, but the government could still go ahead with
the reform, analyst Gintaras Shlizhyus said in a note.
    Polish central bank rate setter Grazyna Ancyparowicz was
quoted on Saturday as saying that interest rates would most
likely remain unchanged until the end of 2020.
            CEE       SNAPSHOT   AT                         
            MARKETS             1115 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.6490   25.6440    -0.02%    -0.42%
 crown      >                                       
 Hungary    <EURHUF=  320.4100  319.7500    -0.21%    -2.96%
 forint     >                                       
 Polish     <EURPLN=    4.2740    4.2595    -0.34%    -2.28%
 zloty      >                                       
 Romanian   <EURRON=    4.6280    4.6185    -0.21%    +1.12%
 leu        >                                       
 Croatian   <EURHRK=    7.4150    7.4105    -0.06%    +0.21%
 kuna       >                                       
 Serbian    <EURRSD=  117.8900  118.0000    +0.09%    +0.52%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1089.77  1092.190    -0.22%    +1.08%
 Budapest             36999.63  36760.00    +0.65%    -6.04%
 Warsaw                2274.07   2286.92    -0.56%    -7.60%
 Bucharest             8138.27   8088.71    +0.61%    +4.96%
 Ljubljana  <.SBITOP    891.24    887.54    +0.42%   +10.52%
 Zagreb                1819.81   1822.78    -0.16%    -1.25%
 Belgrade   <.BELEX1    740.46    744.04    -0.48%    -2.55%
 Sofia                  640.25    640.21    +0.01%    -5.49%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.2290    0.0160   +182bps     +2bps
   5-year   <CZ5YT=R    1.7150   -0.0710   +193bps     -7bps
   10-year  <CZ10YT=    2.2080    0.0100   +180bps     +1bps
   2-year   <PL2YT=R    1.6000   -0.0030   +219bps     +0bps
   5-year   <PL5YT=R    2.4950    0.0130   +271bps     +1bps
   10-year  <PL10YT=    3.1250    0.0100   +271bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.65      1.75      1.95      1.44
 Hungary                  0.39      0.62      0.82      0.16
 Poland                   1.74      1.76      1.82      1.70
 Note: FRA  are for ask prices                              
 (Additional reporting by Luiza Ilie in Bucharest, editing by
Larry King)
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