Sectors Shares

Forint takes breather ahead of crucial central bank meeting

* Forint bucks CEE fx easing on dollar strength
* Forint still near 3-year low ahead of key cbank meeting
* Hungarian cbank seen shifting to less dovish rhetoric

By Sandor Peto
BUDAPEST, June 18 (Reuters) - The forint and Hungarian
government bonds took a breather on Monday after last week's
weakening, a day before a meeting of the National Bank of
Hungary whose ultra-loose policy has come under fire as U.S.
interest rates rise.
The dollar's strength continues to put pressure on
Central European currencies. The zloty shed 0.2
percent and the leu and the Czech crown 0.1
percent by 0913 GMT.
The forint's easing was hardly noticeable, but
trading at 322.7 against the euro it was near the 3-year lows it
hit at 323.95 on Friday.
Hungary's 10-year government bond yield was steady at 3.46
percent, but it stayed well above Poland's corresponding yield
which dropped 2 basis points to 3.22 percent.
Early this year, it was more than one percentage point below
its Polish peer. Since then a global rise in debt yields has
shattered the credibility of the Hungarian central bank's goal
to keep long-term yields relatively low.
The rise came just as Hungary boosted debt issuance to
pre-finance EU-sponsored projects and cover a 1.3-billion-euro
bond expiry a week ago, and coincided with a pick-up in
inflation in May across Central Europe.
The NBH is due to release new inflation forecasts next week,
and they are likely to rise.
They could stay well within the bank's 2-4 percent target
range, but the rise fuels uncertainty over the bank's targets,
market participants said.
The bank is expected to keep its rates on hold, but a shift
in its language towards more openness to tightening is possible,
traders and analysts said.
"The comments will be crucial," one trader said.
The bank on Monday tightened mortgage conditions on loans
with interest rates fixed for less than 10 years, to drive
borrowers into fixed-rate loans.
Elsewhere, the zloty was flat after new data showed a 7
percent annual rise in wages in May, a strong rate, though a tad
below expectations.
The Polish central bank has also pledged to keep short-term
interest rates on hold at record lows for years, but had no
target for long-term yields.
The figures are unlikely to change its commitment. Wages do
not spur inflation as Polish companies are healthy and invest to
boost efficiency and the state budget is stable, analysts said.
The crown eased slightly to 25.735 versus the
Czech producer prices rose at the fastest pace in five years
in May, jumping 1.0 percent month-on-month.
This confirms that the central bank will likely move faster
than expected on interest rate hikes, possibly lifting them as
early as this month, but that has been partly priced in already.
Czech forward rate agreements have priced in a rate hike by
September and give almost a 50 percent chance of a hike already
in June.
Latest Previous Daily Change
bid close change in 2018
Czech <EURCZK= 25.7500 25.7130 -0.14% -0.81%
crown >
Hungary <EURHUF= 322.7000 322.6200 -0.02% -3.65%
forint >
Polish <EURPLN= 4.2927 4.2857 -0.16% -2.71%
zloty >
Romanian <EURRON= 4.6685 4.6640 -0.10% +0.24%
leu >
Croatian <EURHRK= 7.3790 7.3825 +0.05% +0.70%
kuna >
Serbian <EURRSD= 117.9700 118.1500 +0.15% +0.45%
dinar >
Note: calculated from 1800 CET

Latest Previous Daily Change
close change in 2018
Prague 1075.08 1077.880 -0.26% -0.29%
Budapest 35974.28 36038.96 -0.18% -8.64%
Warsaw 2205.47 2203.01 +0.11% -10.39%
Bucharest 8220.19 8201.28 +0.23% +6.02%
Ljubljana <.SBITOP 890.33 894.26 -0.44% +10.41%
Zagreb 1822.82 1821.36 +0.08% -1.09%
Belgrade <.BELEX1 730.94 730.73 +0.03% -3.80%
Sofia 628.42 627.90 +0.08% -7.24%
Yield Yield Spread Daily
(bid) change vs Bund change
Czech spread
2-year <CZ2YT=R 1.0330 -0.0330 +168bps -4bps
5-year <CZ5YT=R 1.5370 -0.0020 +177bps +1bps
10-year <CZ10YT= 2.1170 0.0030 +172bps +2bps
2-year <PL2YT=R 1.5870 0.0070 +223bps +0bps
5-year <PL5YT=R 2.4190 -0.0200 +266bps -1bps
10-year <PL10YT= 3.2250 -0.0150 +283bps +0bps
3x6 6x9 9x12 3M
Czech Rep 1.17 1.32 1.45 0.93
Hungary 0.42 0.10 0.83 0.16

Poland 1.75 1.77 1.82 1.70

Note: FRA are for ask prices

(Additional reporting by Jason Hovet in Prague/Pawel Sobczak
and Agnieszka Barteczko in Warsaw; Editing by Adrian Croft)

2018-06-18 11:40:11

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