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CEE MARKETS-Currencies, bond yields ease slightly on dovish ECB

Sandor Peto

* Dovish ECB comments weigh on CEE fx, yields, impact is mild

* Zloty is stablest for decades, yields down ahead of auction

* Leu drifts off record lows, Romanian shares fall further

BUDAPEST, Jan 25 (Reuters) - Central European currencies and government bond yields mostly eased somewhat on Friday after dovish comments from the European Central Bank (ECB) decreased the likelihood of monetary tightening across the region too. ECB President Mario Draghi's comments on Thursday expressing concern over an economic slowdown in the euro zone reinforced expectations that the bank will not start to increase interest rates in the autumn, contrary to its earlier projection. The resulting dollar buying against the euro also weighed on currencies in the European Union's eastern states, whose main trade partner is the euro zone. The region's assets have been shielded by faster growth than in western Europe, and in the case of Poland - the largest eastern EU member by far - a stable monetary policy. The Polish central bank (NBP) has kept its main interest rate at a record low 1.5 percent since 2015 and its governor, Adam Glapinski, said earlier this month it could stay unchanged until 2022. A rise in Polish interest rates is now less likely than a few months ago due to a lower inflation outlook, rate-setter Lukasz Hardt said on Friday. The Polish zloty started to ease even before Hardt's comments. It shed 0.2 percent by 0957 GMT, to trade at 4.2935. That level is still slightly firmer than the currency's 200-day moving average of 4.296.

STABILITY The zloty has been the region's most stable currency in recent months and its weekly volatility has been the lowest in decades. "The weekly range of fluctuations is the lowest since June 1997," Santander Bank Polska analysts said in a note, adding that it expected healthy demand at Poland's government bond auction on Friday. The Polish and Czech 10-year government bond yields tracked safe-haven Bunds more closely in the past months than their more volatile Hungarian and Romanian peers. The 10-year Polish bond traded at 2.7755 percent at 1012 GMT, lower by 4 basis points from Thursday, edging towards the 2-year lows set early this month at 2.71 percent. The yield on Hungarian government bonds dropped by 1-3 basis points from levels before the ECB's conferences, with the 10-year paper trading at 2.83 percent. "(After the ECB's comments) it has become less credible that the Hungarian central bank can and will start monetary tightening in the near future," one Budapest-based fixed income trader said. Romania's leu firmed 0.3 percent as the domestic market reopened after a public holiday on Thursday. But it stayed near record lows, and a 1.1 percent fall in Bucharest's main stock index also reflected the fact that new taxes on the banking and energy sectors continue to pressure Romanian markets.

CEE SNAPSHOT ATMARKETS 1057 CET

CURRENCI ES

Latest Previous Daily Changebid close change in 2019Czech <EURCZK= 25.7200 25.7180 -0.01% -0.05%crown >Hungary <EURHUF= 318.4200 318.3000 -0.04% +0.84%forint >Polish <EURPLN= 4.2935 4.2865 -0.16% -0.09%zloty >Romanian <EURRON= 4.7675 4.7810 +0.28% -2.38%leu >Croatian <EURHRK= 7.4310 7.4325 +0.02% -0.28%kuna >Serbian <EURRSD= 118.3800 118.4800 +0.08% -0.07%dinar >Note: calculated from 1800 CET

daily change

Latest Previous Daily Changeclose change in 2019Prague 1018.70 1017.700 +0.10% +3.26%

0

Budapest 40932.50 40890.94 +0.10% +4.58%Warsaw 2400.77 2406.38 -0.23% +5.45%Bucharest 7065.96 7141.56 -1.06% -4.30%Ljubljana <.SBITOP 832.90 837.87 -0.59% +3.56%>Zagreb 1757.86 1757.13 +0.04% +0.52%Belgrade <.BELEX1 697.46 701.41 -0.56% -8.43%

5>

Sofia 576.91 573.57 +0.58% -2.95%

BONDS

Yield Yield Spread Daily(bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 1.7390 -0.0010 +232bps -1bps

R>

5-year <CZ5YT=R 1.7040 -0.0020 +205bps -2bps

R>

10-year <CZ10YT= 1.8620 0.0000 +168bps -1bps

RR> Poland

2-year <PL2YT=R 1.3750 -0.0050 +196bps -2bps

R>

5-year <PL5YT=R 2.1720 -0.0330 +252bps -5bps

R>

10-year <PL10YT= 2.7950 -0.0150 +261bps -2bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 2.07 2.11 2.14 2.01

<PRIBOR=

>

Hungary 0.28 0.49 0.73 0.00Poland 1.72 1.72 1.73 1.72

Note: FRA are for ask prices quotes

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(Reporting by Sandor Peto Editing by Gareth Jones)