April 9, 2019 / 9:39 AM / 5 months ago

CEE MARKETS-Forint firms, inflation picks up more than expected

    * Hungary headline, core CPI rise near top of target range
    * Forint firms, then retreats, cbank seen waiting for more
    * CPI rise causes less forint weakness than in 2018
    * Serbian central bank meets, seen keeping rates on hold

    By Sandor Peto
    BUDAPEST, April 9 (Reuters) - The forint firmed slightly on
Tuesday as Hungarian inflation data showed a
bigger-than-expected pick up in inflation towards the top of the
central bank's 2-4 percent target range.
    Surging wages have pushed annual inflation rates higher
across Central Europe this year, prompting concern in the Czech
Republic and Hungary. In Poland and Serbia inflation has
remained relatively low.
    Serbia's central bank is expected to keep its benchmark
interest rate, the highest in the region, unchanged at 3 percent
on Tuesday.
    The dinar was slightly firmer against the euro at
117.84 at 0834 GMT, in line with the modest rises of most
currencies in the region. 
    The forint traded at 321.1 against the euro, up
0.1 percent.
    Hungary's March annual headline and core inflation came in
higher than expected, at 3.7 percent and 3.8 percent
respectively, driven partly by a rise in the excise tax on
    Hungarian government bond yields rose by 3-5 basis points,
with the 10-year paper trading at 3.14 percent, making them
attractive ahead of Thursdays primary auctions, one trader said.
    The forint firmed to 320.7 from 321 after the data before
    "Some investors probably thought of monetary tightening
first, but then started to reconsider that," one Budapest-based
dealer said.
    "If the next figures are as bad as this and the central bank
(NBH) says nothing, the forint could weaken gradually," the
dealer added.    
    The forint set 11-month highs at 312.65 on March 20, but
fell through 322 after the NBH in late March increased its
overnight deposit rate by 10 basis points to -0.05 percent, but
dropped its hawkish bias, saying that data would drive policy. 
    The forint is still far from the record lows beyond 330,
reached last year after a rise in headline inflation which
caused worries in markets.
    The NBH was regarded as one of the most dovish central banks
in the world that time.    
    But fears over a global economic slowdown have made the
Federal Reserve's and the euro zone's interest rate outlook more
accommodative since then, reducing pressure on smaller central
banks as well to tighten their policy.
    While the NBH's rhetoric is less dovish than last year, its
interest rates are still deep below inflation and analysts said
the bank would keep them low as long as it can to support
lending and economic growth.
    But if the bank's June inflation report indicates further
inflation rise, that could force the NBH to further tighten
liquidity in forint markets, and possibly increase its overnight
deposit rate again, CIB analyst Sandor Jobbagy said in a note.
            CEE       SNAPSHOT   AT                         
            MARKETS             1034 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6220   25.6260    +0.02%    +0.33%
 crown      >                                       
 Hungary    <EURHUF=  321.1000  321.5000    +0.12%    -0.00%
 forint     >                                       
 Polish     <EURPLN=    4.2864    4.2894    +0.07%    +0.07%
 zloty      >                                       
 Romanian   <EURRON=    4.7500    4.7476    -0.05%    -2.02%
 leu        >                                       
 Croatian   <EURHRK=    7.4360    7.4315    -0.06%    -0.35%
 kuna       >                                       
 Serbian    <EURRSD=  117.8400  117.9500    +0.09%    +0.39%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1082.66  1084.460    -0.17%    +9.74%
 Budapest             41950.56  41826.90    +0.30%    +7.18%
 Warsaw                2374.10   2359.52    +0.62%    +4.28%
 Bucharest             8264.06   8248.40    +0.19%   +11.92%
 Ljubljana  <.SBITOP    872.99    873.26    -0.03%    +8.55%
 Zagreb                1797.16   1793.55    +0.20%    +2.76%
 Belgrade   <.BELEX1    728.90    732.88    -0.54%    -4.30%
 Sofia                  580.86    583.30    -0.42%    -2.29%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.8210    0.1500   +240bps    +15bps
   5-year   <CZ5YT=R    1.7630    0.0300   +221bps     +3bps
   10-year  <CZ10YT=    1.8770    0.0170   +188bps     +2bps
   2-year   <PL2YT=R    1.6670   -0.1160   +224bps    -12bps
   5-year   <PL5YT=R    2.2430   -0.0060   +269bps     -1bps
   10-year  <PL10YT=    2.9170   -0.0080   +292bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.15      2.17      2.19      2.02
 Hungary                  0.34      0.49      0.67      0.16
 Poland                   1.75      1.74      1.74      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Raissa Kasolowsky)
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