CEE MARKETS-Czech crown, Prague stocks close to two-year highs

Credit: REUTERS/Bernadett Szabo

The Czech crown gained past a key level against the euro on Tuesday to touch a 23-month high as markets priced in rising chances of an interest rate increase this year. Prague stocks also traded at their highest in nearly two years.

PRAGUE, Jan 14 (Reuters) - The Czech crown gained past a key level against the euro on Tuesday to touch a 23-month high as markets priced in rising chances of an interest rate increase this year. Prague stocks also traded at their highest in nearly two years.

Other central European currencies strengthened as well, led by the Hungarian forint's EURHUF= 0.5% rise after stronger-than-expected inflation data showed price growth hitting a seven-year high of 4.0%.

"Investors, foreign ones especially, took the rise in inflation as a clue that the central bank may tighten monetary conditions," a dealer said, adding tightening by the Hungarian central bank, viewed as the most dovish in the region, was still unlikely.

The Hungarian central bank lowered its own inflation gauge on Tuesday and has said it was committed to an accommodative, loose monetary policy.

Stock markets gave back some of their recent gains won so far this year on improving global sentiment as the United States and China moved closer to a trade deal.

Prague's market .PX climbed to its highest since February 2018 in early Tuesday trade, at 1,141.13 points, It was up 0.2% by mid-morning.

The crown EURCZK= retreated by 0955 GMT and was steady at 25.215 to the euro, with a dealer saying the move stronger was helped by lower liquidity and better sentiment in the region but that the 25.18 level was showing resistance.

The Czech National Bank has kept the main two-week repo rate CZCBIR=ECI unchanged at its last five monetary policy meetings, balancing domestic inflationary pressures with uncertainties abroad affecting the export-reliant Czech economy.

In recent months, Czech markets have priced out chances of a rate cut in the next year. They now are starting to price in higher chances of a rate increase this year after inflation came in above the upper end of the bank's tolerance band around its 2% target the past two months.

Central bank Vice-Governor Marek Mora said late on Monday he saw stable or mildly higher interest rates this year as the most likely.

"For me, if the indications of a revival abroad remain, and developments abroad tend towards optimistic, then I could imagine myself leaning again towards raising interest rates," Mora told Czech Television.

Analysts said the crown's gains might help keep the central bank's hand steady. "The stronger the crown, the weaker the chance the central bank will tighten ... That is always the dilemma for markets," ING economist Jakub Seidler said.

CEE MARKETS

SNAPSHOT

AT

1055 CET

CURRENCIES

Latest

Previous

Daily

Change

bid

close

change

in 2020

EURCZK=

Czech crown

EURCZK=

25.2150

25.2200

+0.02%

+0.86%

EURHUF=

Hungary forint

EURHUF=

332.6000

334.1050

+0.45%

-0.44%

EURPLN=

Polish zloty

EURPLN=

4.2320

4.2371

+0.12%

+0.58%

EURRON=

Romanian leu

EURRON=

4.7790

4.7782

-0.02%

+0.19%

EURHRK=

Croatian kuna

EURHRK=

7.4435

7.4440

+0.01%

+0.03%

EURRSD=

Serbian dinar

EURRSD=

117.4500

117.6700

+0.19%

+0.10%

Note: daily change

calculated from

1800 CET

Latest

Previous

Daily

Change

close

change

in 2020

.PX

Prague

.PX

1139.45

1137.4100

+0.18%

+2.14%

.BUX

Budapest

.BUX

45336.74

45447.52

-0.24%

-1.62%

.WIG20

Warsaw

.WIG20

2182.75

2194.42

-0.53%

+1.52%

.BETI

Bucharest

.BETI

10033.11

10023.95

+0.09%

+0.56%

.SBITOP

Ljubljana

.SBITOP

979.32

980.08

-0.08%

+5.77%

.CRBEX

Zagreb

.CRBEX

2044.45

2043.13

+0.06%

+1.34%

.BELEX15

Belgrade

.BELEX15

802.25

802.68

-0.05%

+0.07%

.SOFIX

Sofia

.SOFIX

577.67

578.16

-0.08%

+1.68%

BONDS

Yield

Yield

Spread

Daily

(bid)

change

vs Bund

change in

Czech Republic

spread

CZ2YT=RR

2-year

CZ2YT=RR

1.7240

0.0080

+230bps

+0bps

CZ5YT=RR

5-year

CZ5YT=RR

1.4680

-0.0530

+195bps

-4bps

CZ10YT=RR

10-year

CZ10YT=RR

1.7130

0.0280

+192bps

+4bps

Poland

PL2YT=RR

2-year

PL2YT=RR

1.5170

-0.0560

+210bps

-6bps

PL5YT=RR

5-year

PL5YT=RR

1.9980

-0.0270

+248bps

-2bps

PL10YT=RR

10-year

PL10YT=RR

2.3300

-0.0210

+253bps

-1bps

FORWARD

RATE

AGREEMENT

3x6

6x9

9x12

3M interbank

Czech Rep

CZKFRAPRIBOR=

2.29

2.31

2.31

2.17

Hungary

HUFFRABUBOR=

0.27

0.34

0.43

0.00

Poland

PLNFRAWIBOR=

1.74

1.77

1.79

1.71

Note: FRA quotes

are for ask prices

**************************************************************

Czech rate expectationshttps://tmsnrt.rs/2tX0cc9

(Reporting by Jason Hovet in Prague, Marton Dunai in Budapest, Alicja Ptak in Warsaw and Luiza Ilie in Bucharest; editing by Larry King)

((jason.hovet@thomsonreuters.com; +420 224 190 476))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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