July 4, 2018 / 9:33 AM / a month ago

CEE MARKETS-Leu steady, Romanian central bank may increase rates

    * Leu steady as Romanian central bank meets
    * Forint rebounds, cbank discusses CPI issues with analysts

    By Sandor Peto
    BUDAPEST, July 4 (Reuters) - The leu was steady as
investors waited for Wednesday's announcement of whether
Romanian central bank will continue to increase interest rates.
    Some of the leu's Central European peers firmed as investors
scaled back some of their currency selling positions in emerging
markets after the Chinese central bank moved to reverse two
months of falls in the yuan.      
    In the same period, capital flows into the dollar
knocked Central Europe's liquid currencies: the forint
and the zloty have shed about 5 percent this year and
the Czech crown about 2 percent.
    While the Czech central bank's interest rate hikes have
failed to strengthen the crown, the leu has been less affected
by the sell-off.
    The Romanian central bank (NBR) has been increasing interest
rates since January. It manages its currency more closely than
its regional peers, and the leu is less liquid.
    The market is split over whether the bank will deliver its
fourth rate hike this year on Wednesday, with many analysts
predicting a quarter-point rise in its main rate to 2.75
percent. No specific time is set for the decision to be made
public.
    Monetary conditions have effectively tightened in the past 3
months as the NBR allowed the 3-month interbank ROBOR rate
 to rise by about 120 basis points to 3.17 percent,
above its own benchmark rate.
    The leu traded flat at 4.6576 versus the euro at 0817 GMT,
while the forint and the Czech crown firmed 0.2 percent to 326.8
and 26.09, respectively.
    "We don't really believe the mood in the region and toward
the crown will change to the better," CSOB analysts said in a
note, adding that the crown may test 26.2 soon.
    Romanian government bonds moved sideways.
    "Since the funding curve is decoupled from the key policy
rate, (the) NBR decision will likely influence mostly the longer
tenors (bond yields)," ING analysts said in a note.
    In Hungary, the 3-month interbank rate has risen
by about 25 basis points to 0.28 percent.
    It has been pulled up by a more than 150 basis point rise in
10-year bond yields this year amid the dollar-driven sell-off in
emerging markets, which coincided with worry that Hungary's
inflation could rise above the middle of the central bank's
(NBH) 2-4 percent target.
    The NBH, which earlier insisted that interest rates should
stay ultra-low for years, abandoned that stance two weeks ago,
but that has not prevented a slide in the forint to record lows
against the euro as short-term market rates remain low.
    The forint became one of the biggest beneficiaries of the
yuan's rebound on Tuesday, boosted by speculation that the NBH
may be working on plans to make its pledge to focus its policy
on price stability more credible.
    The bank's experts discussed issues regarding inflation
trends with market analysts at a meeting on Wednesday, the NBH's
press office said, confirming Reuters information from dealers.
    The bank is due to publish the minutes of its June 19 rate
meeting at 1200 GMT.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1017 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   26.0900   26.1450    +0.21%    -2.10%
 crown      >                                       
 Hungary    <EURHUF=  326.8000  327.3000    +0.15%    -4.86%
 forint     >                                       
 Polish     <EURPLN=    4.3948    4.3955    +0.02%    -4.97%
 zloty      >                                       
 Romanian   <EURRON=    4.6576    4.6580    +0.01%    +0.47%
 leu        >                                       
 Croatian   <EURHRK=    7.3915    7.3820    -0.13%    +0.52%
 kuna       >                                       
 Serbian    <EURRSD=  117.8800  117.9900    +0.09%    +0.53%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1072.68  1076.020    -0.31%    -0.51%
                                       0            
 Budapest             36250.59  36204.30    +0.13%    -7.94%
 Warsaw                2160.83   2160.24    +0.03%   -12.20%
 Bucharest             7990.13   7943.05    +0.59%    +3.05%
 Ljubljana  <.SBITOP    877.38    869.25    +0.94%    +8.80%
            >                                       
 Zagreb                1796.78   1800.96    -0.23%    -2.50%
 Belgrade   <.BELEX1    732.00    737.45    -0.74%    -3.66%
            5>                                      
 Sofia                  629.69    626.53    +0.50%    -7.05%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.3030    0.0440   +200bps     +4bps
            R>                                      
   5-year   <CZ5YT=R    1.6320    0.0110   +194bps     +1bps
            R>                                      
   10-year  <CZ10YT=    2.1910   -0.0330   +190bps     -3bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6730    0.0070   +237bps     +1bps
            R>                                      
   5-year   <PL5YT=R    2.6310   -0.0030   +294bps     +0bps
            R>                                      
   10-year  <PL10YT=    3.2820   -0.0210   +299bps     -2bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                1.17      1.29      1.43      1.16
            <PRIBOR=                                
            >                                       
 Hungary                  0.79      1.03      1.24      0.28
                                                    
 Poland                   1.75      1.78      1.85      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Additional reporting by Luiza Ilie in Bucharest and Jason
Hovet in Prague
Editing by Alison Williams)
  
 
 
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