March 13, 2018 / 10:55 AM / a year ago

CEE MARKETS-Dinar, zloty ease as inflation declines across region

    * Dinar, zloty ease after a batch of CEE data showing CPI
    * Poland to release Feb inflation data on Thursday, fall
    * Serbian inflation decline seen creating appetite for bonds

    By Sandor Peto
    BUDAPEST, March 13 (Reuters) - Serbia's dinar and the Polish
zloty eased on Tuesday as mild inflation readings in Central
Europe increased the likelihood that monetary policy in the
region will be looser than expected.
    Serbia released its lowest annual inflation figure since
2016 on Monday. The rate fell to 1.5 percent in February, below
the 1.9 percent forecast by analysts. 
    The dinar touched a three-week low and was trading
at 118.2 at 0950 GMT, weaker by 0.2 percent.
    Analysts said the fall in inflation could increase demand
for five-year government bonds at an auction on Tuesday.
    Strong appetite for Serbian debt has helped buoy the dinar
in recent weeks, while other currencies in the region have
weakened amid concerns over a rise in global inflation and
interest rates.
    The Serbian central bank (NBS) has repeatedly sold the
currency to stem its strength.
    "From an inflation perspective ... a moderate downwards
adjustment to the 3.50 percent base rate would be justified,"
Raiffeisen analyst Stephan Imre said in a note.
    "However, we assume that NBS will walk the talk and wait for
EM/RSD market reaction to the 21 March FOMC meeting."
    The Polish central bank lowered its inflation forecasts last
week, and Governor Adam Glapinski said he saw no reason to start
to lift record-low interest rates before the end of 2020,
knocking the zloty below the 4.2 percent line against the euro. 
    February inflation figures are due on Thursday, with a drop
expected in the annual reading to 1.7 percent in February from
1.9 percent in January. That is weighing on the zloty even
though markets are still pricing in a rise in rates next year. 
    The zloty eased 0.1 percent to 4.21 against the
euro, near its weakest levels of the past three months.
    The Czech crown firmed 0.1 percent to 25.435
versus the euro but was still trading near two-month lows.
    The leu was steady at 4.6616, after Romanian data
showed a rise in annual inflation to 4.7 percent in February
from 4.3 percent in January.
    The rate is the highest in the region after a surge in the
past year, but the February figure was in line with
    Net wages, which fuel inflation, continued to rise robustly 
in the year to January but slowed to 8 percent from 11.7 percent
in December.
    Erste analysts said in a note dated March 12 that they
expected two further Romanian central bank rate hikes this year.
    "(These will be) data-dependent ... and connected to the
decisions of other central banks in the CEE region in order to
avoid a high interest rate differential," they added. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1050 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4350   25.4630    +0.11%    +0.42%
 crown      >                                       
 Hungary    <EURHUF=  311.7500  312.1500    +0.13%    -0.27%
 forint     >                                       
 Polish     <EURPLN=    4.2100    4.2059    -0.10%    -0.80%
 zloty      >                                       
 Romanian   <EURRON=    4.6616    4.6610    -0.01%    +0.39%
 leu        >                                       
 Croatian   <EURHRK=    7.4390    7.4413    +0.03%    -0.12%
 kuna       >                                       
 Serbian    <EURRSD=  118.2000  118.0100    -0.16%    +0.25%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1130.54  1128.130    +0.21%    +4.86%
 Budapest             38684.10  38822.65    -0.36%    -1.76%
 Warsaw                2376.93   2378.72    -0.08%    -3.42%
 Bucharest             8599.44   8559.15    +0.47%   +10.91%
 Ljubljana  <.SBITOP    818.73    818.14    +0.07%    +1.53%
 Zagreb                1843.80   1844.90    -0.06%    +0.05%
 Belgrade   <.BELEX1    740.52    739.38    +0.15%    -2.54%
 Sofia                  679.82    681.36    -0.23%    +0.35%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.8560    0.0360   +143bps     +4bps
   5-year   <CZ5YT=R    1.2780   -0.0090   +128bps     +1bps
   10-year  <CZ10YT=    1.9460   -0.0070   +133bps     +0bps
   2-year   <PL2YT=R    1.5800   -0.0030   +215bps     +1bps
   5-year   <PL5YT=R    2.5210    0.0360   +253bps     +5bps
   10-year  <PL10YT=    3.3290    0.0320   +271bps     +4bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.95      1.06      1.22      0.90
 Hungary                  0.07      0.10      0.18      0.03
 Poland                   1.75      1.76      1.82      1.71
 Note: FRA  are for ask prices                              
 (Additional reporting by Marcin Goettrig in Warsaw
Editing by Catherine Evans)
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