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CEE MARKETS-Leu nears record low on fiscal concerns, despite expected strong GDP growth

GDP growth@

* Romania fiscal, monetary policy uncertainty weighs on its assets

* Leu tests record lows though robust Q3 growth figure is expected

* Zloty eases ahead of detailed Oct inflation figures

BUDAPEST, Nov 13 (Reuters) - The leu neared record lows on Monday despite expectations for robust output data from Romania, depressed by uncertainty over a likely government spending spree. Loose fiscal policy including steep wage hikes have already boosted Romania's inflation to a four-year high of 2.6 percent in October and led to an upwards revision in the Romanian central bank's (NBR) inflation forecast last week. The bank also signaled that in the future its monetary policy will focus on keeping market interest rates near its benchmark rate, and it would be more flexible on the exchange rate. Its comments pushed the leu through the 4.6 line against the euro, which market participants had believed was defended by the NBR in the past. On Monday the leu eased 0.1 percent against the euro, to trade at 4.6533 at 0938 GMT, near to record lows set at 4.655 on Friday and again touched early on Monday. Romanian government bond yields, which rose to multi-year highs on Friday, were mixed. The 10-year bond traded at a yield of 4.44 percent on Monday, up one basis point, one trader said. "There are no reasons for the leu to firm going forward," said another dealer, based in Bucharest, adding that concerns over a rise in the budget deficit would maintain the pressure on the currency. A controversial tax overhaul plan has also weighed on the leu. The main Central European economies are due to release to third-quarter economic output figures on Tuesday. Romania is expected to report the strongest annual growth rate in the region, about 6.5 percent, but going forward a strong rise in wages is likely to lose steam, Erste analysts said in a note. The median forecast of analysts in a Reuters poll was 5.8 percent for Romania's growth. Given uncertainties over fiscal policy, government spending late this year and the NBR's response, Romanian assets will remain fragile, market participants said. "Whereas we would not exclude additional short-term setbacks for the leu..., a fast depreciation towards EUR/RON 4.70 would increase pressure for policy makers to react," Raiffeisen analyst Gunter Deuber said in a note. The prospect of strong output data did not help Poland's zloty either, which eased 0.2 percent to 4.2358, sticking to the past month's typical levels. Detailed October inflation figures due from Poland at 1300 GMT could show that core inflation stays low and may even fall a tad to 0.9 percent year-on-year, the Raiffeisen note said. That could supply the Polish central bank's doves with important arguments, the note added.

CEE MARKETS SNAPSH AT 1038 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 25.549 25.556 +0.03 5.71% 0 5 % Hungary 311.85 311.73 -0.04% -0.97% forint 00 50 Polish zloty 4.2358 4.2263 -0.22% 3.97% Romanian leu 4.6533 4.6481 -0.11% -2.54% Croatian 7.5480 7.5465 -0.02% 0.09%

kuna

Serbian 118.43 118.62 +0.16 4.15% 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 1064.7 1063.7 +0.10 +15.5 5 0 % 3% Budapest 39634. 39435. +0.51 +23.8 62 24 % 5% Warsaw 2450.9 2457.6 -0.27% +25.8 2 2 2% Bucharest 7765.1 7771.6 -0.08% +9.60 2 3 % Ljubljana 789.19 792.00 -0.35% +9.98

%

Zagreb 1846.5 1857.0 -0.57% -7.44% 0 2 Belgrade 736.90 738.64 -0.24% +2.72

%

Sofia 671.60 671.78 -0.03% +14.5

2% BONDS

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

Republic

2-year 0.49 0.145 +124b +15bp ps s 5-year 0.761 0 +110b +2bps

ps

10-year 1.718 0.004 +133b +3bps

ps Poland

2-year 1.609 0.042 +236b +4bps

ps

5-year 2.619 0.043 +296b +6bps

ps

10-year 3.405 0.032 +302b +6bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.97 1.1 1.21 0

IBOR=>

Hungary <BU 0.09 0.1 0.16 0.03

BOR=>

Poland <WI 1.77 1.805 1.895 1.73

BOR=>

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

(Additional reporting by Luiza Ilie in Bucharest, Editing by Angus MacSwan)