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CEE MARKETS-Romanian stocks, leu regain some ground after tax and pension policy shock

policy shock@ BUDAPEST/BUCHAREST, June 30 (Reuters) - The Romanian leu and stocks firmed slightly on Friday, recouping some of their losses from Thursday when the new government was voted in, as the new prime minister denied they were planning to dismantle private pension funds. Romanian markets plunged on Thursday after the ruling Social Democrats announced an unexpected tax overhaul, which was not discussed with business figures beforehand, and the new finance minister said they were planning to dismantle a multi-billion private pension scheme. Hungary and Poland had taken similar steps that had upset investors and weighed on local markets for years. The private pension system in Romania was introduced in 2008 to supplement ailing state pensions. New Romanian Prime Minister Mihai Tudose and ruling Social Democrat Party leader Liviu Dragnea later denied such a plan to liquidate pension funds exists. On Friday the leu was 0.1 percent firmer at 0849 GMT, while the Bucharest stock market index was 0.4 percent higher, after plunging almost 4 percent the day before. However, investors were still wary of the unpredictable policies of the ruling Social Democrats and the fiscal impacts of the tax changes planned for 2018. The Coalition for Romania's Development, which groups major investors' associations, said the mixed messages of decision makers over the private pension funds "has the consequence of raising distrust over the way these measures were grounded." Romania's economy grew at the fastest rate in central Europe in the first quarter, but political turmoil and policy uncertainty have weighed on its markets in the past weeks. The Czech crown was also a bit firmer on Friday, trading just around levels it touched on Thursday when the central bank signaled it may be heading towards its first interest rate hike in almost a decade in the third quarter.

The crown's path is still a big uncertainty. Any significant firming trend would lessen the need for a rate hike, although the closing of positions in the crown - built up before the exit from the FX cap earlier this year - could weaken the currency. Governor Jiri Rusnok said the crown exchange rate remained a significant source of uncertainty, after the central bank freed it in April from a currency cap that kept it weak. "Comments by Czech Central Bank governor Rusnok and the accompanying assumption of a key rate hike already in Q3 2017 gave the koruna additional short-term support," Raiffeisen said in a note. "Still, we would not expect too much short-term stimulus for CZK on the news as additional strength could quickly be used by investors to reduce positions acquired during the FX regime." The Czech central bank is getting hawkish in the region, unlike its peers in Poland and Hungary where monetary policy is expected to remain loose this year and next. Poland's central bank is likely to keep interest rates at record lows until the end of next year because inflation is expected to stabilize, its governor said earlier this month. Poland will decide on rates next week.

CEE MARKETS SNAPSH AT 1048 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 26.217 26.236 +0.07 3.01% 0 5 % Hungary 309.00 309.60 +0.20 -0.06% forint 00 50 % Polish zloty 4.2290 4.2372 +0.19 4.14%

%

Romanian leu 4.5630 4.5695 +0.14 -0.61%

%

Croatian 7.4105 7.4128 +0.03 1.95% kuna % Serbian 120.65 120.72 +0.06 2.24% dinar 00 00 % Note: daily calculated previo close 1800 change from us at CET

STOCKS

Latest Previo Daily Change

us

close change in

2017

Prague 977.62 975.83 +0.18 +6.08 % % Budapest 35226. 35130. +0.28 +10.0 90 27 % 7% Warsaw 2313.3 2329.2 -0.69% +18.7 0 6 6% Bucharest 7885.1 7855.6 +0.38 +11.2 2 6 % 9% Ljubljana 793.58 796.20 -0.33% +10.5

9%

Zagreb 1862.9 1873.6 -0.58% -6.61% 0 8 Belgrade 713.78 714.10 -0.04% -0.50% Sofia 703.71 702.49 +0.17 +20.0 % 0%

BONDS

Yield Yield Spread Daily (bid) change vs change Bund in Czech spread

Republic

2-year 0.123 0.123 +069b +14bp ps s 5-year -0.039 0 +020b +2bps

ps

10-year 0.954 -0.011 +051b +0bps

ps Poland

2-year 1.942 -0.056 +251b -4bps

ps

5-year 2.709 0.034 +295b +5bps

ps

10-year 3.355 0.002 +291b +1bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.39 0.5 0.55 0

IBOR=>

Hungary <BU 0.21 0.25 0.29 0.15

BOR=>

Poland <WI 1.752 1.79 1.825 1.73

BOR=>

Note: FRA are for ask quotes prices ********************************************************* *****

(Writing by Krisztina Than, additional reporting by Jason Hovet,; editing by Keith Weir)