Strong data fails to boost Czech crown Serbia cuts rates again

Reuters

By Sandor Peto

BUDAPEST, Oct 9 (Reuters) - The Serbian dinar eased on Monday after the country's central bank cut interest rates, in its second surprise reduction in two months, while robust Czech economic data boosted expectations for a central bank rate hike there.

The dinar shed 0.1 percent against the euro, to trade at 119.33 at 1019 GMT, after the bank lowered its benchmark rate by 25 basis points to 3.5 percent after a slowing in Serbian inflation.

The Czech economic data failed to lift the crown, but some of the region's other currencies and government bonds rose,recovering from a fall triggered by U.S. jobs data which has strengthened expectations for a December interest rate hike in the world's biggest economy.

Czech figures released on Monday showed a fall in unemployment to a record low in September and a higher-than-expected 5.8 percent annual rise in industrial output in August.

Annual inflation rose to 2.7 percent in September, the highest in five years.

The figures bolstered expectations that the Czech central bank (CNB) will increase interest rates further next month.

The crown eased a little further to 25.89 against the euro, after its sharp retreat on Friday following the U.S. jobs data.

Last week, at 25.789 it touched its highest levels since the CNB removed a cap that had kept the crown weaker than 27 versus the euro for more than three years.

The forint and the zloty recovered from Friday's lows, and government bond yields in the region mostly fell after a jump on Friday.

The forint, trading at 312.10 against the euro, was off the 5-month low hit on Friday at 312.58, but near it.

The Hungarian central bank (NBH) is expected to keep liquidity in forint interbank markets abundant, using Monday's weekly fx swap tender, dealers said.

"In the technical sense, the forint should strengthen, but it will not," one Budapest-based trader said, adding that the NBH was likely to keep the forint weak with its dovish policies.

With the European Central Bank not rushing to follow the example of the Fed's tightening, Central European rate-setters have been split.

The Czechs, having the lowest inflation target in the region, have started to lift interest rates.

Hungary has been easing monetary policy and the Fed rate hike expectations did not deter Serbia to cut rates further as inflation had headed lower.

In Romania, where the central bank is facing a liquidity squeeze in leu markets, the government is due to hold a tender of seven-week bonds. Last week Romania rejected all bids at a tender of 2019-expiry bonds.

After a surge in Romanian bond yields, the government may cancel the auction or reject the bids, ING analysts said in a note.

	CEE MARKETS	SNAPSHOT	AT 1219 CET
		CURRENCIES
		Latest	Previous	Daily	Change
		bid	close	change	in 2017
Czech crown		25.8900	25.8750	-0.06%	4.31%
Hungary forint		312.1000	312.5300	+0.14%	-1.05%
Polish zloty		4.3101	4.3109	+0.02%	2.18%
Romanian leu		4.5780	4.5773	-0.02%	-0.94%
Croatian kuna		7.4990	7.5073	+0.11%	0.75%
Serbian dinar		119.3300	119.2200	-0.09%	3.37%
Note: daily change	calculated from	previous	close at	1800 CET
		STOCKS
		Latest	Previous	Daily	Change
			close	change	in 2017
Prague		1058.42	1058.06	+0.03%	+14.84%
Budapest		37946.86	37941.82	+0.01%	+18.57%
Warsaw		2484.28	2479.46	+0.19%	+27.54%
Bucharest		7999.95	7984.32	+0.20%	+12.91%
Ljubljana		808.75	799.73	+1.13%	+12.70%
Zagreb		1813.54	1813.27	+0.01%	-9.09%
Belgrade		725.53	726.08	-0.08%	+1.14%
Sofia		680.40	679.50	+0.13%	+16.02%
		BONDS
		Yield	Yield	Spread	Daily
		(bid)	change	vs Bund	change in
Czech Republic					spread
2-year		0.313	-0.057	+101bps	-6bps
5-year		0.491	-0.043	+076bps	-4bps
10-year		1.351	0.009	+090bps	+2bps
Poland
2-year		1.78	0.002	+248bps	+0bps
5-year		2.773	0.02	+304bps	+2bps
10-year		3.484	-0.013	+303bps	-1bps
	FORWARD	RATE	AGREEMENT
		3x6	6x9	9x12	3M interbank
Czech Rep		0.76	0.92	1.04	0
Hungary		0.09	0.14	0.2	0.03
Poland		1.776	1.845	1.915	1.73
Note: FRA quotes	are for ask prices
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