April 12, 2018 / 2:19 PM / a year ago

CEE MARKETS-Dinar eases on surprise rate cut, CPI jump lifts leu

    * Serbian central bank again surprises by cutting rates
    * Rate cut hardly weakens dinar, Serbian CPI below target
    * Romania CPI at five-year high, government halves bond
    * Hungary completes one of its biggest domestic bond

 (Recasts with Serbian central bank decision, Romanian and
Hungarian bond auctions)
    By Sandor Peto
    BUDAPEST, April 12 (Reuters) - The dinar eased slightly on
Thursday as Serbia's central bank surprised again by cutting its
benchmark rate further, while a jump in Romania's inflation to a
five-year high strengthened the leu, adding fuel to monetary
tightening expectations.
    Monetary policy expectations had limited impact on regional
currencies in recent weeks, mostly overshadowed by global risk
sentiment, even though inflation readings remained mild across
Central Europe apart from Romania.
    Government bond prices, however, mostly firmed, again with
the exception of Romania, where the European Union's fastest
wage increases are boosting inflation and the current account
    Serbia said on Thursday that annual inflation declined to
1.4 percent in March, against 3.6 percent a year earlier, and
the central bank lowered its benchmark rate by 25 basis points.

     At 3 percent, it is still the highest in the region, even
though this was the second consecutive interest rate meeting at
which the bank surprised with a cut.
     The dinar eased only a shade, to 118.28 against the euro by
1309 GMT, remaining near its strongest level in almost four
years despite central bank efforts to weaken it by selling in
the market and cutting interest rates.
    Further rate easing cannot be ruled out, especially if the
dinar remains strong, Erste Bank analyst Milan Deskar-Skrbic
said in a note.
    Inflation, which is now below the central bank's 1.5-4.5
percent target range, could stay low.
    The bank has limited power to influence it because the dinar
has been buoyed mainly by increased demand for lending, FDI
inflows and robust exports, rather than portfolio flows,
Deskar-Skrbic said.
    Neighbouring Romania has the opposite inflation problem.
    Its annual inflation jumped to 5 percent, with natural gas
and tobacco prices expected to lift it further before a decline 
towards the central bank's 1.5-3.5 percent target range, Erste
analyst Eugen Sinca said in a separate note.
    "We maintain our call for another policy rate hike ... at
the May policy meeting," he added.     
    The leu firmed by less than 0.1 percent to 4.6609
against the euro, with the bank having already flagged the
inflation rise.
    But Romanian government bonds continued to ease and the
government sold a little more than half of the 2024-expiry bonds
offered at an auction.
    Hungary sold bonds worth 120 billion forints ($474.4
million) amid robust demand in one of its biggest single sales
at a domestic auction.
    Sentiment was helped by investors' expectations for
predictability in economic and monetary policy after Sunday's
elections, in which Prime Minister Viktor Orban's right-wing
government won a third successive term.
            CEE       SNAPSHOT   AT                         
            MARKETS             1509 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.2990   25.2980    -0.00%    +0.96%
 crown      >                                       
 Hungary    <EURHUF=  311.3500  311.4400    +0.03%    -0.14%
 forint     >                                       
 Polish     <EURPLN=    4.1780    4.1863    +0.20%    -0.04%
 zloty      >                                       
 Romanian   <EURRON=    4.6609    4.6635    +0.06%    +0.40%
 leu        >                                       
 Croatian   <EURHRK=    7.4200    7.4320    +0.16%    +0.14%
 kuna       >                                       
 Serbian    <EURRSD=  118.2800  118.2300    -0.04%    +0.19%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1131.93  1124.030    +0.70%    +4.99%
 Budapest             38518.05  37971.57    +1.44%    -2.18%
 Warsaw                2287.79   2271.93    +0.70%    -7.05%
 Bucharest             8887.16   8828.34    +0.67%   +14.62%
 Ljubljana  <.SBITOP    831.65    829.29    +0.28%    +3.13%
 Zagreb                1787.60   1805.03    -0.97%    -3.00%
 Belgrade   <.BELEX1    738.22    737.79    +0.06%    -2.84%
 Sofia                  660.30    660.64    -0.05%    -2.53%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.7590   -0.0580   +134bps     -4bps
   5-year   <CZ5YT=R    1.1770   -0.0260   +127bps     -2bps
   10-year  <CZ10YT=    1.7770   -0.0110   +128bps     -2bps
   2-year   <PL2YT=R    1.5040   -0.0080   +208bps     +1bps
   5-year   <PL5YT=R    2.2260   -0.0160   +232bps     -1bps
   10-year  <PL10YT=    2.9800   -0.0010   +248bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.95      1.06      1.19      0.90
 Hungary                  0.07      0.10      0.18      0.03
 Poland                   1.74      1.74      1.75      1.70
 Note: FRA  are for ask prices                              

($1 = 252.9300 forints)

 (Additional reporting by Luiza Ilie in Bucharest
Editing by Andrew Roche and David Goodman)
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