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Luiza Ilie

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

25 Nov 2019

By Krisztina Than and Luiza Ilie BUDAPEST/BUCHAREST, Nov 25 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 note. "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 CURRENCI ES Latest Previous Daily Change bid close change in 2019 Czech 25.4860 25.5000 +0.05% +0.87% crown Hungary 334.4000 334.4900 +0.03% -3.98% forint Polish 4.2980 4.2969 -0.03% -0.20% zloty Romanian 4.7715 4.7770 +0.12% -2.46% leu Croatian 7.4330 7.4345 +0.02% -0.31% kuna Serbian 117.4700 117.5300 +0.05% +0.71% dinar Note: calculated from 1800 CET daily change Latest Previous Daily Change close change in 2019 Prague 1086.09 1081.900 +0.39% +10.09% 0 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% BONDS Yield Yield Spread Daily (bid) change vs Bund change in Czech spread Republic 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 R> Poland 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 R> FORWARD RATE AGREEMEN T 3x6 6x9 9x12 3M interban k Czech Rep < 2.25 2.24 2.18 2.18 PRIBOR=> Hungary < 0.24 0.27 0.30 0.18 BUBOR=> Poland < 1.73 1.73 1.71 1.71 WIBOR=> Note: FRA are for ask prices quotes ************************************************** ************ (Reporting by Gergely Szakacs; Editing by Rashmi Aich)

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