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CEE MARKETS-Weak dollar helps zloty though central bank keeps loose stance

* Dollar retreat buoys zloty vs euro, but it is near 2-week low

* Polish central bank retains loose policy stance as expected

* Polish govt reshuffle, Czech confidence vote ignored in markets

(Adds Polish central bank rate decision and comments) BUDAPEST/WARSAW, Jan 10 (Reuters) - A weaker dollar helped the zloty firm on Wednesday even though the Polish central bank (NBP) reaffirmed its loose policy stance after its meeting as expected, keeping interest rates on hold. Its Governor Adam Glapinski reiterated that he saw no need for a change in rates this year, adding that they may stay on hold even after 2018. Those comments were not a surprising as December inflation figures were benign. The zloty, instead of weakening, firmed 0.15 percent against the euro by 1541 GMT, to 4.1766. It benefitted from dollar selling after a report that China was ready to slow or halt its U.S. treasury purchases. Central European government bonds followed a rise in U.S. bond yields. Central Europe's most liquid currencies have tracked the dollar's movements this year. Dollar weakness helped the zloty hit a 2-1/2-year high on Friday. Erste analyst Katarzyna Rzentarzewska said the NBP could bring forward rate hikes if demand driven by wages and a tight labour market starts to boost inflation from the middle of 2018. "We currently see the possibility of the first rate hike in the fourth quarter of 2018, if inflation expectations keep increasing and overshooting of inflation target becomes highly likely," she said in a note. A surge in wages has fuelled a rebound in inflation in the region since 2016, but so far only the Czech and the Romanian central banks have started to raise rates from record-low levels. The Romanian bank's (NBR) first hike in a decade, delivered on Tuesday, gave a short-lived lift to the leu, but its comments indicating leniency on some weakness sent the currency lower. It consolidated on Wednesday, trading at 4.641 against the euro, up 0.1 percent. The crown eased slightly after Czech National Bank Governor Jiri Rusnok said he expected at least two more rate hikes by 25 basis points each this year, and December data showed 2.4 percent annual inflation, in line with forecasts. New Czech Prime Minister Andrej Babis, battling allegations his business empire illegally tapped EU subsidies a decade ago, looks certain to lose a parliamentary confidence vote on Wednesday. His party is still likely to retain power, and politics rarely influence Czech markets anyway. Polish markets also remained unaffected by political developments. New Prime Minister Mateusz Morawiecki fired several senior ministers and visited Brussels on Tuesday in an effort to patch up relations with the EU, but said he would not unwind the most-contested judicial reforms. ING analysts said "the change in the position of the head of the Ministry of Foreign Affairs and the Minister of the Environment may signal a desire to mitigate conflicts with the European Union."

CEE SNAPSHOT AT MARKETS 1641 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2018 Czech <EURCZK= 25.5700 25.5500 -0.08% -0.11% crown > Hungary <EURHUF= 309.3200 309.5700 +0.08% +0.52% forint > Polish <EURPLN= 4.1766 4.1830 +0.15% -0.01% zloty > Romanian <EURRON= 4.6410 4.6470 +0.13% +0.83% leu > Croatian <EURHRK= 7.4495 7.4475 -0.03% -0.26% kuna > Serbian <EURRSD= 118.7000 118.7100 +0.01% -0.17% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2018 Prague 1101.73 1104.480 -0.25% +2.19%

0

Budapest 39614.96 39869.56 -0.64% +0.60% Warsaw 2508.80 2528.38 -0.77% +1.93% Bucharest 8031.13 8034.76 -0.05% +3.58% Ljubljana <.SBITOP 818.42 813.90 +0.56% +1.49% > Zagreb 1857.69 1859.99 -0.12% +0.80% Belgrade <.BELEX1 767.53 770.64 -0.40% +1.02%

5>

Sofia 697.93 688.11 +1.43% +3.02%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 0.6400 0.0970 +126bps +10bps

R>

5-year <CZ5YT=R 0.9210 0.0140 +111bps +1bps

R>

10-year <CZ10YT= 1.7100 0.0620 +124bps +5bps

RR> Poland

2-year <PL2YT=R 1.6140 -0.0260 +223bps -2bps

R>

5-year <PL5YT=R 2.5820 -0.0050 +278bps -1bps

R>

10-year <PL10YT= 3.3300 0.0190 +286bps +0bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 1.03 1.20 1.33 0.76

<PRIBOR=

>

Hungary 0.09 0.15 0.21 0.03 Poland 1.75 1.78 1.88 1.72

Note: FRA are for ask prices quotes

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(Additional reporting by Robert Muller in Prague; Editing by Toby Chopra)