April 10, 2019 / 3:26 PM / 13 days ago

CEE MARKETS-Growth fears keep lid on currencies buoyed by CPI jump, dovish ECB

    * CPI hits top of target range in Prague, above it in
    * Currencies, government bonds firm as ECB comments hit euro
    * Fear of euro zone slowdown impacts limits CEE fx gains
    * Leu, Romanian bonds underperform after inflation jump

 (Recasts with ECB meeting, adds comments, Czech forecast)
    By Sandor Peto
    BUDAPEST, April 10 (Reuters) - Central European currencies
mostly firmed on Wednesday after data for March showed that
annual inflation is near the policy ceiling in most of the
region's main economies.
    Dovish comments from the European Central Bank (ECB) also
helped the region's currencies and government bond prices,
though concerns over economic growth in Europe kept a lid on
    The region's main currencies are little changed so far this
year as rising inflation would nudge them towards firmer levels.
    But a shift towards more dovish monetary policy in the euro
zone and the United States is encouraging the region's central
banks not to increase interest rates.
    The latest U-turn occurred in Hungary, where the central
bank (NBH) raised one of its interest rates in late March, but
dropped its earlier guidance for gradual monetary tightening.
    The change wiped out all of the forint's 2 percent gain
relative to the end of 2018.
    The country's annual inflation had a bigger-than-expected
increase to 3.8 percent, near the top of the NBH's 2-4 percent
target range.
    Inflation data showed an increase to the top of the central
bank's 1-3 percent target in the Czech Republic, and a further
move above the target range in Romania where inflation rose to 4
    High rates maintain the possibility of monetary tightening,
which could buoy the region's currencies against the euro
which eased in its crosses as the ECB kept its loose policy,
eyeing worsening economic data.
    But the gloom may spread as the euro zone is the main export
market of Central Europe, which prevents strong currency gains,
dealers said.
    "This is what keeps the forint in ranges: there are factors
on both sides, and this entire year will be about that," one
Budapest-based dealer said.
    The forint firmed 0.3 percent against the euro to
321.5 by 1344 GMT, still near Tuesday's 3-month low of 322.5. 
    The crown and the zloty gained 0.1
percent, but the Czech unit retreated from a one-month high of
25.59 to 25.60.
    Government bond yields fell slightly across the region,
tracking euro zone peers. Czech yields shrugged off a report on
a government forecast that the state budget could shift to
deficit from 2020.
    Romanian bonds underperformed regional peers, with the yield
on the 10-year paper at a 10-week high, rising 6 basis points to
4.91 percent.
    The leu was flat at 4.7604.
            CEE       SNAPSHOT   AT                         
            MARKETS             1544 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.5970   25.6310    +0.13%    +0.43%
 crown      >                                       
 Hungary    <EURHUF=  321.5000  322.4500    +0.30%    -0.13%
 forint     >                                       
 Polish     <EURPLN=    4.2805    4.2867    +0.14%    +0.21%
 zloty      >                                       
 Romanian   <EURRON=    4.7604    4.7605    +0.00%    -2.24%
 leu        >                                       
 Croatian   <EURHRK=    7.4250    7.4300    +0.07%    -0.20%
 kuna       >                                       
 Serbian    <EURRSD=  117.9500  117.9300    -0.02%    +0.30%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1088.18  1083.420    +0.44%   +10.30%
 Budapest             42084.64  42063.94    +0.05%    +7.53%
 Warsaw                2384.86   2367.84    +0.72%    +4.75%
 Bucharest             8316.58   8301.40    +0.18%   +12.63%
 Ljubljana  <.SBITOP    874.15    873.64    +0.06%    +8.69%
 Zagreb                1804.40   1796.87    +0.42%    +3.18%
 Belgrade   <.BELEX1    739.29    733.02    +0.86%    -2.94%
 Sofia                  582.07    576.58    +0.95%    -2.08%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.6840   -0.1760   +227bps    -16bps
   5-year   <CZ5YT=R    1.6920   -0.0060   +217bps     +2bps
   10-year  <CZ10YT=    1.8330   -0.0220   +187bps     +1bps
   2-year   <PL2YT=R    1.6540   -0.0110   +224bps     +0bps
   5-year   <PL5YT=R    2.2170   -0.0230   +269bps     +1bps
   10-year  <PL10YT=    2.9050   -0.0160   +294bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.13      2.18      2.18      2.02
 Hungary                  0.33      0.48      0.64      0.16
 Poland                   1.73      1.73      1.74      1.72
 Note: FRA  are for ask prices                              

 (Additional reporting by Luiza Ilie in Bucharest;
Editing by Andrew Cawthorne and Mike Harrison)
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