CEE MARKETS 2-Czech crown falls; forint, dinar unfazed by rate cuts

By Sandor Peto

BUDAPEST, Dec 17 (Reuters) - The crown fell against the euro as the Czech

central bank confirmed its weak-currency policy on Tuesday, while interest rate

cuts in Hungary and Serbia had little effect on their currencies.

The central bank decisions confirmed that many Central European monetary

policymakers are preparing for the new year in a dovish mood even though the

U.S. Federal Reserve may signal a move away from the era of cheap money as early

as on Wednesday.

Caution ahead of the Fed's upcoming meeting knocked equity markets, and

Central Europe's main stock indices also eased, led by 1.5 percent fall in

Warsaw's main index.

Currencies, however, remained relatively calm, with the exception of the

Czech crown which had shed 0.6 percent against the euro by 1542 GMT.

Dealers said it continued a weakening trend seen as markets head to the end of

the year.

Europe's economic rebound has shielded currencies in the centre of the

continent from wobbles in other emerging markets in the past months, but most

central banks in the region still want to nudge it along with looser policy.

Emerging Europe's central banks have been cutting interest rates for two

years to support their fragile economies, aided by inflows into emerging markets

of cheap money pumped out by the Federal Reserve and other major central banks.

The Fed may signal at its meeting on Wednesday that it will start cutting

back its stimulus soon. That is unlikely to alter regional central banks' easing

bias, however, as inflation remains low and economies sluggish.

The Czech central bank has run out of room after cutting rates to near zero.

It massively sold the crown last month, though, to continue monetary easing,

weakening it by over 6 percent versus the euro, beyond the 27 crowns per euro

mark.

The bank kept rates on hold on Tuesday and said it would keep the exchange

rate near 27 crowns per euro at least until early 2015. Governor Miroslav Singer

said that the weaker crown should add up to 70 billion crowns ($3.49 billion) to

the economy, creating jobs.

He added the market may be overbought in crowns at the moment but it was

still too early since the interventions to draw any conclusions.

Capital Economics said in a note that improved current accounts and low

inflation could help the crown and the forint weather cuts in U.S. monetary

stimulus much better than, for example, Turkey's lira.

'These factors should allow policymakers to keep interest rates low in order

to support the economic recovery,' it said.

HUNGARY MAY SLOW PACE

Hungary's central bank cut its base rate by 20 basis points to 3 percent as

expected.

It is now 4 percentage points lower compared with August last year, and

investors have been worried that the bank could cut it too sharply, given risks

that upcoming court rulings and government measures regarding struggling foreign

currency loan holders could hurt the bottom line of heavily taxed Hungarian

banks, and lending.

The forint still firmed a shade after the decision, and the yield of 3-year

Hungarian government bonds fell 5 basis points to a record low of 4 percent.

The bank flagged further room for easing, but dealers said it was good news

for Hungarian asset prices that it also signalled a possible slowing of the pace

of its rate cuts.

'I will tell you whether yields could go further down if you tell me if the

Fed will taper its stimulus and at what pace,' one Budapest-based fixed income

trader said.

The dinar eased a shade, after the Serbian central bank cut its

benchmark rate to 9.5 percent. The 50 basis point cut was twice what analysts

had forecast.

CEE MARKETS SNAPSHOT AT 1642 CET

************************** CURRENCIES ************************

Latest Previous Daily Change

bid close change in 2013

Czech crown 27.707 27.536 -0.62% -9.60%

Hungarian forint 298.570 298.930 +0.12% -2.55%

Polish zloty 4.177 4.172 -0.12% -2.48%

Romanian leu 4.471 4.456 -0.34% -0.63%

Croatian kuna 7.629 7.629 0.00% -1.02%

Serbian dinar 114.940 114.890 -0.04% -2.30%

Note: daily change calculated from previous close at 1700 GMT

**************************** STOCKS **************************

Latest Previous Daily Change

close change in 2013

Prague 962.28 966.26 -0.41% -7.36%

Budapest 18593.57 18781.01 -1.00% +2.31%

Warsaw 2398.78 2433.47 -1.43% -7.13%

Bucharest 6310.32 6310.08 -0.01% +22.54%

***************************** BONDS **************************

Yield Yield Spread Daily

(bid) change vs Bund change in

Czech Republic spread

2-year 0.203 +0.102 -4bps +12bps

5-year 0.858 +0.014 +5bps +3bps

10-year 2.291 +0.009 +46bps +1bps

Hungary

3-year 4.000 -0.050 +364bps -4bps

5-year 4.620 -0.030 +381bps -2bps

10-year 5.610 -0.050 +378bps -5bps

******************* FORWARD RATE AGREEMENTS ******************

3x6 6x9 9x12 3M interbank

Czech Rep 0.370 0.350 0.350 0.38

Hungary 2.890 2.935 3.050 3.17

Poland 2.680 2.690 2.780 2.65

Note: FRA quotes are for ask prices

**************************************************************

($1 = 20.0323 Czech crowns)

(Reporting by Reuters bureaus; Writing by Sandor Peto; Editing by Pravin Char)

(([email protected])(+36 1 327 4744)(Reuters Messaging:

[email protected]))

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