CEE MARKETS-Forint hits 8-month high as ECB keeps easy money

20 Jul, 2017

ECB chief Mario Draghi stressed that the bank's governing council were unanimous both on the decision to keep its guidance unchanged and to avoid setting a precise date for a discussion of future policy, noting only that it would occur in the autumn.

The ECB's monetary stimulus has also boosted Central Europe's emerging assets in the past years. However, government bond yields in the region moved higher recently after Draghi raised the prospect of policy tightening last month.

Investors in this part of the world focus on the policy of the European Central Bank, but also watch the Fed and US long-term debt yields.

Healthy economic growth and stability have underpinned the region's currencies even though the region's central banks are unlikely to lift interest rates this year, except for Czechs.

"We think the ECB will only change its communication in the autumn after the German elections, making clearer hints about the expected monetary policy steps," said David Nemeth, an analyst at K&H Bank in a note.

"We expect the ECB will start downsizing its asset buying programme at the beginning of next year and could even end it by mid-2018," he added.

A tapering of the ECB's stimulus could weaken currencies in eastern Europe, and could drive yields higher.

By 1410 GMT the forint firmed more than 0.3 percent to 305.45, levels last seen in November 2016. The Czech crown and the Polish zloty were both 0.1 percent higher.

The forint firmed despite sustained rhetoric by the National Bank of Hungary about using unconventional easing tools on top of record low interest rates to loosen monetary conditions further if inflation lastingly stays below its target.

The bank kept interest rates unchanged as expected on Tuesday, with any price pressures from strong economic growth seen as unlikely to lift inflation beyond its 3 percent target level this year or next.

In Poland, political clouds gathered as the European Union gave Warsaw a week to halt divisive judicial reforms or face punishment for undermining democracy.

Stock markets were mostly in the red by the afternoon, giving up earlier gains.

Oil and gas group MOL outperformed the wider Budapest market, rising 0.25 percent to 21,675 forints, after it announced a major chemicals investment.

The main index of the bourse was down 0.7 percent, with OTP Bank dropping 2.4 percent after recent sharp gains.

 

Copyright Reuters, 2017
 

 

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