December 8, 2017 / 10:02 AM / a year ago

CEE MARKETS-Forint touches new 2017 low after Nov inflation data

    BUDAPEST, Dec 8 (Reuters) - Hungary's forint touched its lowest
level for the year on Friday after November inflation data signalled no imminent
change to maintaining the central bank's ultra-loose monetary policy stance.
    At 0918 GMT, the forint was a touch weaker on the day, rebounding from a
2017 low of 315.18 versus the euro.
    Hovering around the key 315 line, the forint has extended its losses for the
year and is underperforming both the Polish zloty and the Czech crown
    Analysts said a monetary policy divergence between Hungary's central bank,
one of the most dovish in the world, and its more hawkish peers, such as the
Czech or the Polish central bank would be among the main market themes of the
coming year.
    Last month Hungary's central bank announced new monetary easing measures to
take effect next year to push yields lower on longer-dated government bonds and
to encourage borrowers to choose fixed-rate housing loans.
    "There is no serious resistance in sight for the forint until the 315.5
technical level, therefore, the weakness of the forint seen in the past nearly
two weeks can continue," analysts at local borkerage Erste Investment
said in a note.
    The analysts said Friday's data, which showed November inflation at an
annual 2.5 percent, in line with expectations, signalled that the central bank
would not need to adjust its dovish policy stance for the time being.
    The zloty gained 0.16 percent in early trade, while the crown was a touch 
weaker. Even so, both currencies have posted gains of about five percent so far
this year, eclipsing most other peers in the region.
    Central Europe's robust and stable economic growth is expected to boost the
crown, zloty and forint next year, with the former two also getting help from
likely monetary tightening, a Reuters poll found.
    The forint is also expected to regain some of the ground it lost this year,
even though the Hungarian central bank is not expected to start to tighten
monetary policy in contrast to peers elsewhere in central Europe.
    "Given that we do not expect a sustained breach of the central bank's 3
percent (inflation) target for a long time, we do not forecast monetary
tightening," analysts at CIB Bank said in a note.
    "The loose monetary policy of the ECB also bolsters the maintenance of the
local monetary policy room for manoeuvre."
    Main stock markets across the region posted modest gains, with Warsaw's
blue-chip index rising 0.9 percent.
                   CEE MARKETS          SNAPSHOT   AT  1018 CET                 
                                        Latest    Previous  Daily      Change
                                        bid       close     change     in 2017
 Czech crown                             25.5700   25.5630     -0.03%      5.62%
 Hungary forint                         315.0500  314.9800     -0.02%     -1.98%
 Polish zloty                             4.2040    4.2108     +0.16%      4.75%
 Romanian leu                             4.6300    4.6320     +0.04%     -2.05%
 Croatian kuna                            7.5470    7.5450     -0.03%      0.11%
 Serbian dinar                          119.6500  119.6700     +0.02%      3.09%
 Note: daily       calculated from      previous  close at  1800 CET            
                                        Latest    Previous  Daily      Change
                                                  close     change     in 2017
 Prague                                  1059.13   1055.92     +0.30%    +14.92%
 Budapest                               38394.92  38348.20     +0.12%    +19.97%
 Warsaw                                  2414.08   2393.34     +0.87%    +23.93%
 Bucharest                               7672.66   7671.61     +0.01%     +8.29%
 Ljubljana                                781.21    779.11     +0.27%     +8.87%
 Zagreb                                  1847.55   1850.00     -0.13%     -7.38%
 Belgrade                                 740.35    742.65     -0.31%     +3.20%
 Sofia                                    664.18    665.37     -0.18%    +13.26%
                                        Yield     Yield     Spread     Daily
                                        (bid)     change    vs Bund    change in
 Czech Republic                                                        spread
   2-year                                  0.073         0    +082bps      -2bps
   5-year                                  0.727    -0.033    +110bps      -5bps
   10-year                                 1.403    -0.019    +109bps      -4bps
   2-year                                  1.671     0.017    +242bps      +0bps
   5-year                                  2.667     0.022    +304bps      +1bps
   10-year                                 3.269     0.017    +295bps      +0bps
                   FORWARD              RATE      AGREEMENT                     
                                        3x6       6x9       9x12       3M
 Czech Rep                                     1      1.19       1.31          0
 Hungary                                    0.03     0.135       0.18       0.03
 Poland                                    1.763     1.817      1.919       1.72
 Note: FRA quotes  are for ask prices                                           

 (Reporting by Gergely Szakacs; Editing by Keith Weir)
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