March 20, 2018 / 10:46 AM / in 7 months

CEE MARKETS-Zloty falls to four-month low on expectations of Fed tightening

    * Zloty sets four-month low as U.S. interest rates are seen
rising
    * Investors looking towards Wednesday's Fed comments
    * Foreign investors increase their Hungarian bond holdings
    * Regional markets continue to ignore politics

 (Adds zloty, comments, Serbian PM's resignation threat)
    By Sandor Peto and Marcin Goettig
    BUDAPEST/WARSAW, March 20 (Reuters) - Central European
currencies mostly weakened on Tuesday before a two-day meeting
at which the Federal Reserve is expected to raise U.S. interest
rates, making assets in emerging markets relatively less
attractive.
    "A rate hike by the Fed on Wednesday looks a done deal.
Their comments about the future will be more interesting," one
Budapest-based fixed income trader said.
    The region's most liquid currency, the zloty, led
the decline, setting a four-month low against the euro and
trading at 4.23 at 1407 GMT. The forint EURHUF- fell 0.1
percent.
    The zloty did not recover even after Polish central banker
Eugeniusz Gatnar was quoted as saying that an interest rate
increase could be justified in the second half of 2018, because
the bank should act pre-emptively to counter inflation risk.
.
    Early this month, the bank lowered its inflation forecasts
and its governor, Adam Glapinski, said rates were unlikely to
rise before the end of 2020.
    Unchanged rates would make the zloty less attractive if
dollar interest rates rise further.    
    "We believe that the zloty will weaken further as a result
of rising expectations for policy tightening by the Fed and the
ECB, given the weaker expectations for rates hikes by the
National Bank of Poland," ING Bank Slaski said in a note.
    Government bonds and stocks were mixed in the region. Stocks
mostly regained some ground lost on Monday.
    Budapest's main share index rose 0.4 percent. Figures
released in Budapest showed wages continued to grow at
double-digit rates in January.
    The data and retail and industrial output figures released
earlier show that annual economic growth may have exceeded 5.5
percent in the first month of the year, Takarekbank analyst
Gergely Suppan said in a note.
    A rise in foreign holdings of Hungarian government bonds
 this month indicates that they are not
particularly concerned about the outcome of Hungary's elections
on April 8, the fixed-income trader said. 
    A candidate supported by the opposition won a mayoral
by-election late last month in the southern city
Hodmezovasarhely. But opinion polls still show the
ruling Fidesz party leading by a wide margin, and the main
opposition parties failed to forge an alliance at talks in
recent days.
    The dinar hovered around Monday's closing levels,
shrugging off a threat from Serbian Prime Minister Ana Brnabic
to resign if her colleagues do not put aside "personal vanities"
.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1507 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4230   25.4370    +0.06%    +0.47%
 crown      >                                       
 Hungary    <EURHUF=  311.3500  311.0400    -0.10%    -0.14%
 forint     >                                       
 Polish     <EURPLN=    4.2300    4.2190    -0.26%    -1.27%
 zloty      >                                       
 Romanian   <EURRON=    4.6660    4.6660    +0.00%    +0.29%
 leu        >                                       
 Croatian   <EURHRK=    7.4410    7.4353    -0.08%    -0.14%
 kuna       >                                       
 Serbian    <EURRSD=  118.3400  118.2600    -0.07%    +0.14%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1122.51  1116.690    +0.52%    +4.11%
                                       0            
 Budapest             37828.02  37689.09    +0.37%    -3.93%
 Warsaw                2259.99   2248.53    +0.51%    -8.18%
 Bucharest             8776.16   8775.38    +0.01%   +13.19%
 Ljubljana  <.SBITOP    821.92    825.29    -0.41%    +1.93%
            >                                       
 Zagreb                1847.63   1847.61    +0.00%    +0.26%
 Belgrade   <.BELEX1    755.53    748.51    +0.94%    -0.56%
            5>                                      
 Sofia                  658.12    671.80    -2.04%    -2.85%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.8740    0.0280   +145bps     +2bps
            R>                                      
   5-year   <CZ5YT=R    1.3230    0.0520   +135bps     +4bps
            R>                                      
   10-year  <CZ10YT=    1.9690    0.0130   +138bps     +0bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5460    0.0170   +212bps     +1bps
            R>                                      
   5-year   <PL5YT=R    2.4670    0.0350   +249bps     +2bps
            R>                                      
   10-year  <PL10YT=    3.3230    0.0580   +274bps     +4bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                0.96      1.07      1.23      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.08      0.11      0.18      0.03
                                                    
 Poland                   1.72      1.74      1.76      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
    

 (Reporting by Sandor Peto, editing by Larry King)
  
 
 
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