February 12, 2019 / 10:36 AM / 8 months ago

CEE MARKETS-Forint firms as core inflation jumps to 5-year-high

    * Hungary's core inflation reaches mid-point of target
    * Forint firms as expectations for monetary tightening rise
    * Forint firming does not spill over into other CEE markets
    * Czech, Romania next to release CPI data on Wednesday

    By Sandor Peto
    BUDAPEST, Feb 12 (Reuters) - The forint firmed on
Tuesday as a rise in Hungary's core inflation in January revived
expectations that the central bank (NBH) could start tightening
monetary policy soon.
    The first January 2019 inflation numbers from a major
central European economy showed the annual headline index
unchanged at 2.7 percent.
    But core inflation jumped to a five-year high of 3.2 percent
from 2.8 percent in December. The Hungarian central bank's (NBH)
main core index, adjusted for tax changes, rose to 3 percent
from 2.9 percent.
    Last month the forint surged to its strongest level since
May 2018, near 315 versus the euro, after NBH Deputy Governor
Marton Nagy said monetary tightening could start if the core
measure reached or exceeded 3 percent, the mid-point of the
bank's 2-4 percent target range.
    The currency retreated afterwards beyond 320 as expectations
for monetary tightening in the region got hit by data showing a
slowdown in output growth in the euro zone and the European
Union's still robustly growing eastern economies.
    The forint strengthened as much as half a percent on Tuesday
to 318.4 after the data before retreating slightly to 319.15 by
0923 GMT, still up 0.3 percent.
    Analysts mostly still expect the NBH to keep its base rate
at a record low 0.9 percent this year.
    But some of them believe that the core inflation increase
could soon lead to a cut in forint liquidity released by the NBH
into interbank markets via its fx swap facility and an increase
in the short-term BUBOR rates.
    "The NBH could start monetary tightening in March by
reducing the stock of foreign currency swap deals, while
increasing overnight interest rates at the same time," ING
analyst Peter Virovacz said in a note.
    The bank's overnight deposit rate stands at -0.15 percent.
    Erste analyst Orsolya Nyeste said tightening was unlikely to
start before the second quarter. 
    "We continue to think however that this could be a slow and
a gradual process, and the 3M BUBOR rate is unlikely to reach
the level of the policy rate before the year-end," she said.
    Hungarian government bond yields rose a touch more than
their regional peers and German Bund yields. The 10-year
Hungarian paper traded at 2.72 percent, up 4 basis points.
    Elsewhere, the Czech Republic and Romania are due to publish
January inflation data on Wednesday. The crown was a
shade firmer at 25.855 versus the euro.
    The leu was steady at 4.742, and Romanian stocks
 regained some ground after a fall on Monday amid an
escalating row between the government and the central bank over
a new bank tax linked to interbank interest rates. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1023 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.8550   25.8670    +0.05%    -0.57%
 crown      >                                       
 Hungary    <EURHUF=  319.1500  320.0600    +0.29%    +0.61%
 forint     >                                       
 Polish     <EURPLN=    4.3280    4.3252    -0.06%    -0.89%
 zloty      >                                       
 Romanian   <EURRON=    4.7420    4.7410    -0.02%    -1.86%
 leu        >                                       
 Croatian   <EURHRK=    7.4053    7.4075    +0.03%    +0.06%
 kuna       >                                       
 Serbian    <EURRSD=  117.9800  118.2000    +0.19%    +0.27%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1057.49  1046.430    +1.06%    +7.19%
 Budapest             39980.42  39769.48    +0.53%    +2.15%
 Warsaw                2367.33   2354.28    +0.55%    +3.98%
 Bucharest             7426.64   7371.61    +0.75%    +0.58%
 Ljubljana  <.SBITOP    829.51    832.41    -0.35%    +3.14%
 Zagreb                1751.36   1750.20    +0.07%    +0.15%
 Belgrade   <.BELEX1    708.92    709.37    -0.06%    -6.93%
 Sofia                  571.04    573.40    -0.41%    -3.94%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.8880    0.1670   +246bps    +16bps
   5-year   <CZ5YT=R    1.6110    0.0100   +199bps     -1bps
   10-year  <CZ10YT=    1.7230    0.0210   +160bps     +1bps
   2-year   <PL2YT=R    1.5490   -0.0090   +212bps     -2bps
   5-year   <PL5YT=R    2.1910   -0.0010   +257bps     -2bps
   10-year  <PL10YT=    2.7490    0.0160   +262bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.08      2.11      2.13      1.99
 Hungary                  0.36      0.57      0.78      0.15
 Poland                   1.74      1.73      1.71      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto)
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