February 13, 2019 / 10:23 AM / 6 months ago

CEE MARKETS-Currencies firm as Czechs add to upside CPI surprises

    * Crown firms after Jan CPI comes in at 2.5 pct vs 2.2 pct
    * Core inflation rise also continues to buoy the forint
    * ECB says Romania's bank tax is a financial stability risk 

    By Sandor Peto and Jason Hovet
    BUDAPEST/PRAGUE, Feb 13 (Reuters) - Upside surprises in
January inflation figures drove Central European currencies
higher on Wednesday, after Czech annual inflation came in well
above forecasts.
    The forint firmed 0.3 percent and the Czech crown
 0.2 percent against the euro by 0929 GMT, while the
leu and the zloty also gained some ground.
    Weak economic figures from the euro zone and the region put
some pressure on regional currencies in past weeks, but they
regained some ground this week, helped by local inflation data.
    Czech annual inflation jumped to 2.5 percent in January from
2 percent in December, well above a 2.2 percent forecast, and
analysts said a rise in energy bills early this year could
maintain upside inflation pressure. 
    "The fact that inflation growth was pulled by the majority
of basket items will certainly not escape the attention of the
hawkish wing of the bank board," said Radomir Jac, chief
economist, Generali Investments CEE.
    "The combination of higher inflation and a weaker crown will
mean debate on hiking interest rates will stay on the table," he
said. "I believe the CNB will leave rates unchanged in March,
but a serious debate on a hike could be on the agenda at the
beginning of May."
    Czech government bond yields rose. The 10-year yield rose by
2 basis points at 1.7 percent, compared with a 2 basis point
drop in the corresponding Polish yield to 2.7 percent.    
    The forint got a boost already on Tuesday, after Hungary's
tax-adjusted annual core inflation reached 3 percent.
    That is the mid-point of the central bank target range and
the threshold that central bank deputy governor Marton Nagy said
last month would be a signal that the bank needs to start
monetary tightening.
    Romanian figures released on Wednesday showed that annual
inflation was flat at 3.3 percent.
    That was a tad above analysts' expectations, but it is
unlikely to trigger action from the Romanian central bank which
is deeply engaged in a row with the government over a new tax on
banks' assets tied to interbank interest rates.
    The European Central Bank criticized the government over the
tax on Wednesday, saying that it could have a material impact on
financial stability.
    A new tax on telecoms companies may lead to price increases
by them, which is a risk, but inflation could stay inside the
central bank's 1.5-3.5 percent target range this year, Erste
analyst Dorina Ilasco said in a note.
    Romanian government bond yields were mostly steady after
jitters since the government announced its 2019 tax plans in
December as part of a budget based on economic growth
assumptions that critics said were unrealistic. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1029 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.8150   25.8670    +0.20%    -0.42%
 crown      >                                       
 Hungary    <EURHUF=  317.7000  318.5500    +0.27%    +1.07%
 forint     >                                       
 Polish     <EURPLN=    4.3283    4.3295    +0.03%    -0.89%
 zloty      >                                       
 Romanian   <EURRON=    4.7435    4.7481    +0.10%    -1.89%
 leu        >                                       
 Croatian   <EURHRK=    7.4030    7.4075    +0.06%    +0.09%
 kuna       >                                       
 Serbian    <EURRSD=  118.0500  118.1200    +0.06%    +0.21%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1058.57  1057.320    +0.12%    +7.30%
 Budapest             40297.86  40488.09    -0.47%    +2.96%
 Warsaw                2364.99   2370.99    -0.25%    +3.88%
 Bucharest             7579.42   7523.83    +0.74%    +2.65%
 Ljubljana  <.SBITOP    827.57    833.24    -0.68%    +2.90%
 Zagreb                1753.49   1750.00    +0.20%    +0.27%
 Belgrade   <.BELEX1    707.98    707.54    +0.06%    -7.05%
 Sofia                  572.66    573.32    -0.12%    -3.67%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.7770    0.0280   +234bps     +2bps
   5-year   <CZ5YT=R    1.6720    0.0700   +205bps     +7bps
   10-year  <CZ10YT=    1.7530    0.0430   +163bps     +5bps
   2-year   <PL2YT=R    1.5500   -0.1050   +212bps    -11bps
   5-year   <PL5YT=R    2.1750   -0.0150   +255bps     -1bps
   10-year  <PL10YT=    2.7190   -0.0110   +259bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.08      2.11      2.13      1.99
 Hungary                  0.37      0.58      0.79      0.15
 Poland                   1.74      1.73      1.73      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto;
Editing by Andrew Cawthorne)
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