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CEE MARKETS-Interbank rates jump stabilizes leu, forint at 7-month high vs zloty

Sandor Peto

zloty@

* Leu drifts further off record lows as ROBOR rates surge

* Forint sets 7-month high vs zloty

* Hungarian central bank may signal cut in its fx swaps

BUDAPEST, Jan 28 (Reuters) - The leu bucked a weakening of Central European currencies on Monday, drifting further off record lows as interbank interest rates jumped. Bucharest's overnight interbank interest rate started the new reserve period of banks at bids at 3.24 percent on Friday, jumping from 1.52 percent after Thursday's holiday in Romania, and stayed steady on Monday. Those "abnormally high" levels give some respite to the leu , but the government may need to cut its 400 million leu offer in a 2031-expiry bond on Monday, after a 12-14 basis- point jump in bond yields on Friday, ING analysts said. "This amount was not easy to sell even in better times. We expect some partial allocation towards the higher end of the secondary market," they said in a note. The tighter interbank rates cut pressure on the Romanian central bank (NBR) to intervene in currency markets to defend the leu which set record lows at 4.7985 last week, beyond 4.7 which some investors earlier thought was the bank's tolerance level. Romania reported on Monday a budget deficit of 2.9 percent of economic output for 2018. The figure is below the European Union's 3 percent tolerance level, but is unlikely to soothe worries over a widening in Romania's twin fiscal and current account deficits. Romanian assets have plunged in the past month because the government launched taxes on banks and energy firms, causing concern over a business environment and, by linking the bank tax to interbank interest rate, confusion over monetary policy. The region's main currencies eased slightly, reflecting concern over Europe's economic growth, even though the European Union's eastern economies grow faster than western peers. With the zloty shedding 0.2 percent and the forint only 0.1 percent versus the euro, the Hungarian unit set its strongest rate in almost seven months against the Polish unit. Their exchange rate reflects diverging monetary policy expectations. Poland's inflation has stayed below the central bank's target range, 1.5-3.5 percent, and the bank may keep interest rates on hold for years. Expectations for Hungarian interest rates had been similar until last year, but the Hungarian central bank has gradually shifted towards more hawkish rhetoric. Its Deputy Governor Marton Nagy said two weeks ago the bank could start to tighten policy if core inflation reached or exceeded 3 percent. The bank is expected to keep interest rates on hold at its meeting on Tuesday, but some analysts expect it to signal a tightening in the liquidity it provides through its fx swaps.

CEE SNAPSHOT ATMARKETS 1021 CET

CURRENCI ES

Latest Previous Daily Changebid close change in 2019Czech <EURCZK= 25.7000 25.6890 -0.04% +0.03%crown >Hungary <EURHUF= 317.7900 317.5000 -0.09% +1.04%forint >Polish <EURPLN= 4.2950 4.2870 -0.19% -0.13%zloty >Romanian <EURRON= 4.7650 4.7669 +0.04% -2.33%leu >Croatian <EURHRK= 7.4260 7.4290 +0.04% -0.22%kuna >Serbian <EURRSD= 118.3500 118.4650 +0.10% -0.04%dinar >Note: calculated from 1800 CET

daily change

Latest Previous Daily Changeclose change in 2019Prague 1026.61 1023.100 +0.34% +4.06%

0

Budapest 41027.07 40944.82 +0.20% +4.82%Warsaw 2382.21 2398.74 -0.69% +4.64%Bucharest 7053.08 7053.67 -0.01% -4.48%Ljubljana <.SBITOP 837.44 833.51 +0.47% +4.13%>Zagreb 1759.89 1762.22 -0.13% +0.63%Belgrade <.BELEX1 699.69 699.70 -0.00% -8.14%

5>

Sofia 573.34 573.33 +0.00% -3.55%

BONDS

Yield Yield Spread Daily(bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 1.7400 0.0030 +233bps +1bps

R>

5-year <CZ5YT=R 1.6680 -0.0150 +200bps -1bps

R>

10-year <CZ10YT= 1.8550 0.0210 +166bps +2bps

RR> Poland

2-year <PL2YT=R 1.3830 0.0010 +197bps +1bps

R>

5-year <PL5YT=R 2.2130 0.0050 +254bps +1bps

R>

10-year <PL10YT= 2.8120 -0.0020 +261bps +0bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 2.07 2.11 2.12 2.00

<PRIBOR=

>

Hungary 0.30 0.55 0.81 0.14Poland 1.74 1.73 1.73 1.72

Note: FRA are for ask prices quotes

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(Additional reporting by Radu Marinas in Bucharest, editing by Ed Osmond)