Forint rallies as Hungarian, Czech rate setters hint at tightening

* Forint surges further to 5-month high on hawkish comments
* Czech central banker sees more though slower rate hikes
* Hungarian, Romanian bond yields jump at auctions

(Recasts with continuing forint rally, comments from Czech
central bank chief, auctions results)
By Sandor Peto
BUDAPEST, Jan 17 (Reuters) - The forint extended gains on
Thursday, rallying to 5-month highs against the euro on comments
from Hungarian central bank (NBH) Deputy Governor Marton Nagy
suggesting that monetary tightening may be near.
The bank's base rate has been at a record low of 0.9 percent
since 2016, and became Central Europe's lowest rate after
several hikes by the Czech central bank (CNB) since 2017.
Headline inflation has sharply retreated in the region in
the past months, but the NBH's key core inflation measure
excluding tax effects rose to 2.9 percent in December.
Nagy said on Wednesday that monetary tightening could start
if the rate reached or exceeded 3 percent, the midpoint of the
bank's target range.
The comments bolstered the forint by 1.5 percent from
Wednesday's lows to a 5-month high of 319.35 against the euro by
Thursday. Further gains towards 7-month highs at 319 are
possible, dealers said.
One dealer said the rally might be overdone, though it might
signal a shift into ranges between 319 and 322 from the past
months' typical 321-324 channel.
"We should not expect a rate hike to come right after core
inflation reaches 3 percent," the dealer said, adding that the
bank was more likely to tighten conditions by cutting the
liquidity from its fx swap tool.
Market participants said hints at tighter policy supported
the forint, and also the crown which was steady at
25.54 versus the euro, but traded near its strongest levels in 4
Soft price index figures raised some question marks over
further CNB rate increases.
But Governor Jiri Rusnok told Czech Radio on Thursday that
"some moderate rise can be assumed", even though the pace "will
be definitely much slower than last year".
A possible uptick in hedging deals by exporters after a dip
in activity last quarter can also support the crown, CSOB
analysts said in note.
While Nagy's comments boosted the forint, they added fuel to
an ongoing upwards correction in Hungarian bond yields after a
big decline since October, traders said.
Yields jumped at the Hungarian and Romanian bond auctions on
Thursday, but demand was high enough to increase Hungary's sale
above the plan at a top-up tender.
"The yield rise lost steam in the afternoon, but looking at
the momentum, there may be room for some further increase," one
Budapest-based trader said.

Latest Previous Daily Change
bid close change in 2019
Czech <EURCZK= 25.5400 25.5410 +0.00% +0.65%
crown >
Hungary <EURHUF= 319.4500 321.4000 +0.61% +0.51%
forint >
Polish <EURPLN= 4.2845 4.2825 -0.05% +0.12%
zloty >
Romanian <EURRON= 4.6930 4.6876 -0.12% -0.83%
leu >
Croatian <EURHRK= 7.4280 7.4265 -0.02% -0.24%
kuna >
Serbian <EURRSD= 118.3500 118.3000 -0.04% -0.04%
dinar >
Note: calculated from 1800 CET

Latest Previous Daily Change
close change in 2019
Prague 1015.07 1019.000 -0.39% +2.89%
Budapest 40973.73 40933.04 +0.10% +4.69%
Warsaw 2354.13 2364.17 -0.42% +3.40%
Bucharest 7200.63 7077.10 +1.75% -2.48%
Ljubljana <.SBITOP 835.91 827.54 +1.01% +3.94%
Zagreb 1756.19 1752.38 +0.22% +0.42%
Belgrade <.BELEX1 697.56 704.25 -0.95% -8.42%
Sofia 566.77 563.49 +0.58% -4.66%
Yield Yield Spread Daily
(bid) change vs Bund change
Czech spread
2-year <CZ2YT=R 1.8780 0.1120 +248bps +10bps
5-year <CZ5YT=R 1.7730 0.0180 +210bps +1bps
10-year <CZ10YT= 1.8550 0.0180 +162bps +1bps
2-year <PL2YT=R 1.3760 -0.0380 +197bps -5bps
5-year <PL5YT=R 2.2330 0.0330 +256bps +2bps
10-year <PL10YT= 2.8380 0.0580 +261bps +5bps
3x6 6x9 9x12 3M
Czech Rep 2.15 2.21 2.25 2.01
Hungary 0.32 0.59 0.85 0.14

Poland 1.73 1.73 1.73 1.72

Note: FRA are for ask prices

(Additional reporting by Luiza Ilie in Bucharest and Jason
Hovet in Prague
Editing by Mark Heinrich)

First Published: 2019-01-17 12:08:58
Updated 2019-01-17 17:26:15

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