April 9, 2019 / 2:49 PM / 10 days ago

CEE MARKETS-Forint retreats on doubt CPI rise will bring tighter policy

    * Hungary headline, core CPI rise near top of target range
    * Forint retreats on doubt cbank will tighten policy further
    * CPI rise causes less forint weakness than in 2018
    * Serbian central bank keeps rates on hold as expected

 (Adds forint retreat, Serbian rate decision, leu weakening)
    By Sandor Peto
    BUDAPEST, April 9 (Reuters) - The forint approached 3-month
lows on Tuesday due to doubts that the National Bank of Hungary
(NBH) will tighten policy further in response to a
bigger-than-expected pick-up in inflation.    
    Hungary's March annual headline and core inflation came in
at 3.7 percent and 3.8 percent respectively, near the top of the
bank's 2-4 percent target range, driven partly by a rise in the
excise tax on tobacco.   
    Surging wages have increased inflation across Central Europe
this year, raising concern in the Czech Republic and Hungary. In
Poland and Serbia inflation has remained relatively low.
    Serbia's central bank kept its benchmark interest rate, the
highest in the region, unchanged at 3 percent on Tuesday as
expected, citing low inflation and a stable dinar.
    The dinar was bid a shade weaker, at 117.99 versus
the euro at 1409 GMT.
    All Central European units eased, except for the zloty
.
    The forint shed 0.1 percent to 321.96, near 322.33, near its
weakest levels since the middle of January.
    Hungary's 10-year government bond yield was fixed 5 basis
points higher at 3.14 percent.
    The currency initially firmed after the inflation data, but
expectations of more NBH policy-tightening were quickly replaced
by doubts, market participants said.
    Just three weeks ago the forint was trading at 11-month
highs at 312.65, boosted by NBH pledges of gradual policy
tightening if core inflation exceeded 3 percent.
    But the forint gave up all of this year's gains after the
bank raised its overnight deposit rate slightly to -0.05 percent
late last month and announced some liquidity tightening in
interbank markets. It also dropped its hawkish bias, saying that
data would drive its policy.
    "Investors bought the forint on the earlier pledges (to
tighten policy), but will not go into the same street again,"
one dealer said.    
    The forint is still far from the record lows beyond 330,
reached last year after a rise in headline inflation which
caused market jitters. The NBH was regarded as one of the most
dovish central banks in the world at that time.
    But fears over a global economic slowdown have made the
Federal Reserve and euro zone interest rate outlooks more
accommodative since then, reducing pressure on smaller central
banks to tighten their policy as well.     
   
    The leu eased 0.3 percent to 4.7605 against the
euro. It has retreated this week as liquidity in leu markets
increased slightly, pushing the 3-month interbank rate
 slightly lower.
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1614 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6310   25.6260    -0.02%    +0.30%
 crown      >                                       
 Hungary    <EURHUF=  321.9600  321.5000    -0.14%    -0.27%
 forint     >                                       
 Polish     <EURPLN=    4.2864    4.2894    +0.07%    +0.07%
 zloty      >                                       
 Romanian   <EURRON=    4.7605    4.7476    -0.27%    -2.24%
 leu        >                                       
 Croatian   <EURHRK=    7.4370    7.4315    -0.07%    -0.36%
 kuna       >                                       
 Serbian    <EURRSD=  117.9900  117.9500    -0.03%    +0.26%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1082.81  1084.460    -0.15%    +9.76%
                                       0            
 Budapest             41927.98  41826.90    +0.24%    +7.13%
 Warsaw                2362.01   2359.52    +0.11%    +3.75%
 Bucharest             8305.96   8248.40    +0.70%   +12.49%
 Ljubljana  <.SBITOP    873.64    873.26    +0.04%    +8.63%
            >                                       
 Zagreb                1796.87   1793.55    +0.19%    +2.75%
 Belgrade   <.BELEX1    733.02    732.88    +0.02%    -3.76%
            5>                                      
 Sofia                  579.65    583.30    -0.63%    -2.49%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.7650    0.0940   +234bps     +9bps
            R>                                      
   5-year   <CZ5YT=R    1.6840   -0.0490   +213bps     -5bps
            R>                                      
   10-year  <CZ10YT=    1.8640    0.0030   +187bps     +1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.6600   -0.1230   +224bps    -13bps
            R>                                      
   5-year   <PL5YT=R    2.2340   -0.0150   +268bps     -1bps
            R>                                      
   10-year  <PL10YT=    2.9220   -0.0030   +293bps     +1bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.15      2.17      2.19      2.02
            <PRIBOR=                                
            >                                       
 Hungary                  0.35      0.50      0.67      0.16
                                                    
 Poland                   1.73      1.73      1.74      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
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 (Reporting by Sandor Peto
Editing by Mark Heinrich)
  
 
 
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