April 4, 2018 / 2:26 PM / 15 days ago

CEE MARKETS-Polish yields fall on CPI decline, Romania keeps rates on hold

    * Polish March annual CPI drops, well below forecasts
    * CPI surprise pushes zloty, Polish bond yields lower
    * Romanian central bank surprises, keeping rates on hold

 (Adds Romanian central bank decision, new comments)
    By Sandor Peto and Anna Koper
    BUDAPEST/WARSAW, April 4 (Reuters) - The zloty and Polish
bond yields fell after Warsaw data showed a surprise retreat in
inflation, while the leu held steady even though the Romanian
central bank disappointed investors who had bet on an interest
rate hike.
    Flash figures from Poland showed a slump in annual inflation
in March to 1.3 percent, below analysts' 1.65 percent forecast.
    "We begin to wonder, whether the monetary tightening happens
at all during this economic cycle," Erste analyst Katarzyna
Rzentarzewska said in a note.
    "If recent developments continue, it will become
increasingly likely that the policy rate remains flat beyond
2019."
    The zloty fell a quarter of a percent against the
euro after the figures, to rebound to 4.204 by 1351 GMT, still
weaker by 0.1 percent from Tuesday.
    Polish government bond yields fell, with the 10-year yield
touching its lowest levels since the last months of 2016, at 3.1
percent, after falling anyway in the past days due expected low
supply and a decline in Poland's budget deficit to a record low.

    Warsaw's bluechip stocks index fell in tandem with
Budapest by 1.5 percent due to risk aversion after China hit
back at U.S. plans to slap tariffs on Chinese goods.

    Poland's data suggests that inflation may have continued to
retreat across Central Europe after a decline in its annual
rates in February in the region, with the exception of Romania.
    Decisions and comments from the region's central banks have
tended to surprise on the dovish side in the past two months,
including an interest rate cut by the Serbian central bank last
month. 
    On Wednesday Romania's central bank kept rates on hold even
though nine out of 10 analysts projected a hike in a Reuters
poll last month.
    The bank's Governor Mugur Isarescu somewhat tempered
expectations last week. 
    After Wednesday's decision he said the bank would watch the
impacts of the two rate hikes it already delivered earlier this
year, and that the leu's rate differential was favourable to the
currency.
    The leu was flat, trading at 4.6615 against the
euro.
    Hungary's forint firmed 0.2 percent against the
euro and touched a two-week high, four days before a
parliamentary election that Prime Minister Viktor Orban's Fidesz
party is expected to win. 
    Markets have priced in a Fidesz victory, one Budapest-based
currency dealer said. 
    "That would represent stability and predictability, while an
opposition win would mean uncertainty," the dealer said.       
            CEE       SNAPSHOT   AT                         
            MARKETS             1551 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.3120   25.3350    +0.09%    +0.91%
 crown      >                                       
 Hungary    <EURHUF=  311.3500  311.9200    +0.18%    -0.14%
 forint     >                                       
 Polish     <EURPLN=    4.2040    4.1994    -0.11%    -0.66%
 zloty      >                                       
 Romanian   <EURRON=    4.6620    4.6611    -0.02%    +0.38%
 leu        >                                       
 Croatian   <EURHRK=    7.4340    7.4303    -0.05%    -0.05%
 kuna       >                                       
 Serbian    <EURRSD=  118.1700  118.1900    +0.02%    +0.28%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1112.91  1116.660    -0.34%    +3.22%
                                       0            
 Budapest             37316.10  37867.54    -1.46%    -5.23%
 Warsaw                2205.05   2239.15    -1.52%   -10.41%
 Bucharest             8732.60   8764.69    -0.37%   +12.62%
 Ljubljana  <.SBITOP    824.00    819.09    +0.60%    +2.19%
            >                                       
 Zagreb                1800.70   1798.11    +0.14%    -2.29%
 Belgrade   <.BELEX1    746.34    746.98    -0.09%    -1.77%
            5>                                      
 Sofia                  653.48    653.14    +0.05%    -3.54%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    0.7830   -0.0550   +137bps     -5bps
            R>                                      
   5-year   <CZ5YT=R    1.2350   -0.0520   +133bps     -5bps
            R>                                      
   10-year  <CZ10YT=    1.8300   -0.0290   +133bps     -2bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.4810   -0.0330   +207bps     -3bps
            R>                                      
   5-year   <PL5YT=R    2.3260   -0.0610   +242bps     -6bps
            R>                                      
   10-year  <PL10YT=    3.1160   -0.0750   +262bps     -7bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                0.96      1.06      1.22      0.90
            <PRIBOR=                                
            >                                       
 Hungary                  0.07      0.10      0.18      0.03
                                                    
 Poland                   1.74      1.75      1.77      1.70
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
 *************************************************          
 *************                                      
 
 (Reporting by Sandor PetoEditing by Alison Williams)
  
 
 
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