July 11, 2018 / 9:40 AM / 8 months ago

CEE MARKETS-CPI jump fails to lift crown, Polish cbank confirms loose stance

    * June Czech annual inflation rises to 2.6 pct, eight-month
    * Crown joins zloty, forint decline despite rate
    * Polish central bank retains loose stance as expected
    * Romanian inflation flat at five-year highs, leu remains

 (Adds Polish central bank comments, graphics)
    By Sandor Peto
    BUDAPEST, July 11 (Reuters) - Global trade war fears caused
the Czech crown to weaken on Wednesday, even though the
country's inflation rate rose more than expected in June,
increasing the chances interest rates will go up.
    The zloty also fell as the Polish central bank (NBP)
retained its loose monetary policy stance at its meeting, as
    The currencies  fell as the United States threatened to
impose tariffs on more Chinese goods and China said it would
retaliate. The prospect of an escalating trade war
made riskier assets in emerging economies less attractive.
    The Czech Republic's annual inflation rate picked up to 2.6
percent last month from 2.2 percent in May, widening the gap
between the rate and the Czech central bank's 2 percent target.
    The Czech jobless rate dropped below 3 percent, indicating
that rising wages in one of the European Union's tightest labour
markets may continue to drive up prices. 
    The figures added to expectations the central bank (CNB)
will raise rates further. After an increase in its benchmark
rate just two weeks ago, it may deliver the next as soon as its
next meeting, in August.
    "If the koruna (crown) remains weak, the CNB will again
increase rates in the second half of this year," Erste analyst
Jan Zemlicka said in a note. "Even August cannot be ruled out".
    The crown,the zloty and the forint
 eased in tandem by 0.4 percent against the euro by
1500 GMT, the region's stock indices mostly dropped and
government bond prices rose. 
    Trading at 25.9 versus the euro, the crown remained much
weaker than the CNB's 25.2 forecast for the second quarter of
the year.    
    Poland also reported earlier that inflation picked up in
June, but the 1.9 percent rate was in the lower half of the
central bank's 1.5 to 3.5 percent target.
    The NBP lowered its inflation forecasts for 2018 and 2020 on
Wednesday, but raised the numbers for 2019.
    Tame core inflation below 1 percent makes a rise in the
NBP's rates unlikely this year and next, Erste analyst Katarzyna
Rzentarzewska said in a note.
    NBP Governor Adam Glapinski said the zloty had strong
fundamentals. He said rates could stay on hold at record lows
this year and next, and said he saw higher chances now that they
would not change in 2020 either.    
    Elsewhere, the less liquid leu was steady after
Romania released a flat 5.4 percent annual inflation figure for
    The figure was lower than expected and the rate is expected
to decline fast in the rest of the year, but the Romanian
central bank may further raise interest rates as early as next
month, Erste analyst Eugen Sinca said in a note. 
            CEE       SNAPSHOT   AT                         
            MARKETS             1700 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.9570   25.8600    -0.37%    -1.60%
 crown      >                                       
 Hungary    <EURHUF=  325.1000  323.7500    -0.42%    -4.36%
 forint     >                                       
 Polish     <EURPLN=    4.3327    4.3163    -0.38%    -3.61%
 zloty      >                                       
 Romanian   <EURRON=    4.6590    4.6588    -0.00%    +0.44%
 leu        >                                       
 Croatian   <EURHRK=    7.4010    7.3973    -0.05%    +0.40%
 kuna       >                                       
 Serbian    <EURRSD=  117.9700  118.0700    +0.08%    +0.45%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1088.33  1088.890    -0.05%    +0.94%
 Budapest             35159.76  35403.20    -0.69%   -10.71%
 Warsaw                2154.28   2177.67    -1.07%   -12.47%
 Bucharest             7892.87   7876.10    +0.21%    +1.79%
 Ljubljana  <.SBITOP    892.80    890.12    +0.30%   +10.72%
 Zagreb                1809.68   1812.33    -0.15%    -1.80%
 Belgrade   <.BELEX1    734.48    738.61    -0.56%    -3.33%
 Sofia                  624.94    629.05    -0.65%    -7.75%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.1870   -0.0210   +184bps     -2bps
   5-year   <CZ5YT=R    1.6240    0.0010   +190bps     +0bps
   10-year  <CZ10YT=    2.1950    0.0000   +189bps     +1bps
   2-year   <PL2YT=R    1.6420   -0.0110   +230bps     -1bps
   5-year   <PL5YT=R    2.5270   -0.0170   +280bps     -2bps
   10-year  <PL10YT=    3.1950   -0.0070   +289bps     +1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                1.41      1.64      1.76      1.18
 Hungary                  0.58      0.83      1.07      0.28
 Poland                   1.74      1.77      1.83      1.70
 Note: FRA  are for ask prices                              

 (Additional reporting by Erika Yip in Warsaw, editing by Larry
King and Alexandra Hudson)
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