March 7, 2019 / 4:06 PM / 3 months ago

CEE MARKETS-Forint hits 10-month high, inflation prospects overshadow ECB

    * Main CEE currencies ease as dovish ECB comments hit euro
    * Forint touches 10-month high vs euro ahead of CPI figures
    * Government bond yields track Bunds lower
    * Serbian central bank keeps rates on hold as expected

 (Recasts with ECB comments, forint rise to 10-month high, new
    By Sandor Peto
    BUDAPEST, March 7 (Reuters) - Dovish comments from the
European Central Bank knocked the forint down from 10-month
highs and weakened Central Europe's major currencies on
    The forint initially jumped from 5-week highs to a 10-month
high of 315 against the euro, driven by expectations that
upcoming February inflation data in Hungary will prompt monetary
    But by 1531 GMT it had retreated to 315.9, down 0.1 percent
from Wednesday. 
    Poland's zloty shed 0.3 percent, to trade at
4.3105 versus the euro and the Czech crown eased 0.2
percent to 25.63.  
    The currencies started to weaken as the euro lost ground 
against the dollar. Buying of the U.S. currency often
spurs selling in emerging markets, including in eastern Europe.
    The euro's fall versus the dollar followed the European
Central Bank's decision to push out the timing of its first
post-crisis interest rate increase from this autumn to 2020 at
the earliest and offered banks a new round of cheap loans.

    A delay in ECB rate increases can reduce pressure on Central
Europe's monetary authorities to tighten policy.
    The Hungarian central bank (NBH) signalled early this year
that a rise in tax-adjusted core inflation to or above 3 percent
could trigger monetary tightening.
    Expectations the bank could start to tighten liquidity in
forint markets have strengthened the forint by almost 2 percent
this year.
    Hungary is due to release February inflation figures early
on Friday.
    "After these (dovish) ECB comments, it would be interesting
to see the NBH moving into the opposite direction ... but there
are some expectations that tomorrow's inflation data will prompt
the bank to do something," one Budapest-based dealer said. 
    Hungarian government bond yields, meanwhile, dropped by 4-5
basis points along the curve from Wednesday's fixing, tracking a
fall in Bund yields.
    Hungary's 5-year bonds traded at 2.2 percent, while its
Polish rival shed 5 basis points to 2.2075 percent.
    "Either the forint market or the debt market is wrong as the
forint is firming, while expectations for monetary tightening
should have pushed up short-term yields," one Budapest-based
trader said. 
    "We will be smarter after tomorrow's inflation figures."
    Elsewhere in the region, the Serbian central bank kept
interest rates on hold as expected, saying that inflation
expectations remained low.
    A March 1-6 Reuters poll of analysts saw the forint easing
mildly over the coming year. The Czech crown EURCZK= and the
Polish zloty EURPLN= were expected to firm, and the dinar to
weaken by almost one percent. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1540 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6000   25.5850    -0.06%    +0.42%
 crown      >                                       
 Hungary    <EURHUF=  315.1000  315.4500    +0.11%    +1.90%
 forint     >                                       
 Polish     <EURPLN=    4.2985    4.2977    -0.02%    -0.21%
 zloty      >                                       
 Romanian   <EURRON=    4.7415    4.7444    +0.06%    -1.85%
 leu        >                                       
 Croatian   <EURHRK=    7.4110    7.4175    +0.09%    -0.01%
 kuna       >                                       
 Serbian    <EURRSD=  118.0800  118.0600    -0.02%    +0.19%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1073.12  1080.530    -0.69%    +8.77%
 Budapest             41010.80  41086.90    -0.19%    +4.78%
 Warsaw                2323.39   2327.16    -0.16%    +2.05%
 Bucharest             7868.07   7917.90    -0.63%    +6.56%
 Ljubljana  <.SBITOP    868.49    865.84    +0.31%    +7.99%
 Zagreb                1766.41   1766.70    -0.02%    +1.01%
 Belgrade   <.BELEX1    693.48    697.65    -0.60%    -8.96%
 Sofia                  584.43    583.00    +0.25%    -1.69%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.8980    0.1020   +243bps    +12bps
   5-year   <CZ5YT=R    1.8330    0.0210   +222bps     +6bps
   10-year  <CZ10YT=    1.9160   -0.0020   +183bps     +4bps
   2-year   <PL2YT=R    1.6090   -0.1110   +214bps    -10bps
   5-year   <PL5YT=R    2.2270   -0.0390   +262bps     +0bps
   10-year  <PL10YT=    2.8760   -0.0330   +279bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.24      2.30      2.32      2.03
 Hungary                  0.42      0.63      0.82      0.14
 Poland                   1.73      1.73      1.73      1.72
 Note: FRA  are for ask prices                              

 (Additional reporting by Aleksandar Vasovic in Belgrade
Editing by Kirsten Donovan/Susan Fenton/Jane Merriman)
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