November 25, 2019 / 10:12 AM / 2 months ago

CEE MARKETS-Romanian leu outperforms on presidential election, deficit risks ahead

    By Krisztina  Than and Luiza Ilie
    BUDAPEST/BUCHAREST, Nov 25 (Reuters) - The Romanian leu
outperformed other currencies in Central Europe on Monday after
centrist President Klaus Iohannis won a second term on Sunday,
but analysts expect the country's swelling deficits might put
pressure on the leu going ahead.
    While Iohannis' election with a strong popular backing is
seen reducing political risk, the Romanian government faces the
challenge of tackling a budget deficit expected to overshoot the
European Union's ceiling of 3% of economic output, while the
economy is slowing.
     Romania's consolidated budget deficit could exceed 4% of
gross domestic product this year, well above target, if the
government doesn't quickly introduce additional fiscal measures,
Finance Minister Florin Citu has said. The current account
deficit is also on the rise. 
    "Investors have a lot to watch going forward, both in very
short-term and in the medium term," Raiffeisen said in a daily
    "With presidential elections out of the agenda, the
government will have to make clear its plans regarding the
fiscal policy for 2020... Also, talks about early parliamentary
elections should emerge as a key point on the political agenda
starting as of this moment."
    By 0847 GMT, the leu traded 0.1% higher on the day against
the euro at 4.7715, while other currencies were flat. The unit
has fallen 2.5% this year so far, the region's second-worst
performer after the Hungarian forint.
    The forint has lost 4% so far this year and is
also drifting just off record lows past 336 versus the euro hit
in September, as the central bank sticks to its loose monetary
policy at home, and global jitters over trade wars and Brexit
continue to weigh on the currency.
    "On Friday, the EUR/HUF exchange rate again approached 336 
but bounced off from there and firmed to 334.40 this morning,"
Erste analysts said in a note. The forint has been see-sawing as
 it has settled in its new, weaker ranges.
    Better-than-expected manufacturing PMI data in the euro zone
- the key trade partner for central Europe's export-dominant
economies - lifted the mood on Friday but the region's
fast-growing economies are still expected to slow next year.
    Poland, the region's biggest economy, could decelerate to
around 3% in 2020 from a robust 4.3% estimated for 2019,
Commerzbank analysts said. 
    "On this outlook, we find it reasonable that the central
bank expects inflation to remain tame and expects not to have to
tighten monetary policy through 2020. Such a policy stance is
neutral for the zloty, and would even turn supportive if the ECB
were to loosen its own stance," they added.
            CEE        SNAPSHOT   AT                         
            MARKETS              0947 CET            
                       Latest    Previous  Daily     Change
                       bid       close     change    in 2019
 Czech                  25.4860   25.5000    +0.05%    +0.87%
 Hungary               334.4000  334.4900    +0.03%    -3.98%
 Polish                  4.2980    4.2969    -0.03%    -0.20%
 Romanian                4.7715    4.7770    +0.12%    -2.46%
 Croatian                7.4330    7.4345    +0.02%    -0.31%
 Serbian               117.4700  117.5300    +0.05%    +0.71%
 Note:      calculated from                1800 CET          
                       Latest    Previous  Daily     Change
                                 close     change    in 2019
 Prague                 1086.09  1081.900    +0.39%   +10.09%
 Budapest              44000.91  44053.95    -0.12%   +12.42%
 Warsaw                 2196.95   2188.24    +0.40%    -3.50%
 Bucharest              9753.01   9718.49    +0.36%   +32.09%
 Ljubljana               900.18    902.31    -0.24%   +11.93%
 Zagreb                 2004.46   2003.27    +0.06%   +14.62%
 Belgrade   <.BELEX15    762.09    764.32    -0.29%    +0.05%
 Sofia                   549.29    551.22    -0.35%    -7.60%
                       Yield     Yield     Spread    Daily
                       (bid)     change    vs Bund   change
 Czech                                               spread
   2-year   <CZ2YT=RR    1.3860   -0.0520   +201bps     -6bps
   5-year   <CZ5YT=RR    1.2650    0.0570   +186bps     +5bps
   10-year  <CZ10YT=R    1.4900    0.0140   +184bps     +0bps
   2-year   <PL2YT=RR    1.4030    0.0040   +203bps     +0bps
   5-year   <PL5YT=RR    1.8090    0.0170   +240bps     +1bps
   10-year  <PL10YT=R    2.0800    0.0330   +243bps     +2bps
            FORWARD    RATE      AGREEMEN                    
                       3x6       6x9       9x12      3M
 Czech Rep          <      2.25      2.24      2.18      2.18
 Hungary            <      0.24      0.27      0.30      0.18
 Poland             <      1.73      1.73      1.71      1.71
 Note: FRA  are for ask prices                               

 (Reporting by Gergely Szakacs; Editing by Rashmi Aich)
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