March 9, 2018 / 10:15 AM / 13 days ago

CEE MARKETS-Crown hits 7-week low on inflation dip surprise

    * Czech inflation falls more than forecast in February
    * Crown dips, investors wonder if data change rate hike
    * CEE price pressures eased, will rise later -analysts
    * Hungary trade surplus strong, forint firmest since Feb. 20

    By Sandor Peto and Petra Vodstrcilova
    BUDAPEST/PRAGUE, March 9 (Reuters) - The crown
dipped to a seven-week low against the euro after Czech
inflation retreated more in February than analyst forecasts,
according to figures released on Friday.
    The drop in annual inflation to 1.8 percent from 2.2 percent
adds to signs that consumer price pressures in Central Europe
are lower than expected, despite a regionwide surge in wages and
    Poland's central bank lowered its inflation forecasts on
Wednesday and surprised investors with strongly dovish comments.
    The crown fell to 25.483 against the euro, its weakest
levels since the middle of January, before rebounding to 25.44
by 0920 GMT, still down by 0.1 percent from Thursday.
    Czech inflation was pushed lower mainly by food and beverage
prices that retreated after a jump in items including eggs and
butter in 2017, Erste analyst Jiri Polansky said in a note.
    But the underlying economic story has not changed, he said.
    "Tight conditions in the labour market, solid domestic
demand, rise in administered prices and higher food and oil
prices...are the most important pro-inflationary factors."
    A Reuters poll of analysts earlier this week projected that 
the crown could spearhead a firming of the main regional
currencies in the coming year, driven by healthy growth and
continuing monetary tightening.
    Other Czech figures underpinned on Friday that wage growth
remains robust, while the country's January trade surplus was
hardly more than half of analysts' forecasts.   
    After the inflation figures that weakened the crown,
investors are awaiting the Czech central bank's reaction, said
Lubos Kolarik, currency trader in Komercni Banka in Prague.
    "The question is, how will it be with the planned rate hikes
in the coming months?" he said. "But it is just one number; I
would not jump into conclusions."
    Hungary's January trade surplus was higher than expected.
That may signal that this year's surplus will be only marginally
below 8.1 billion euros in 2017 despite robust domestic demand,
Takarekbank analyst Gergely Suppan said in a note.
    The surplus has been key among factors that have buoyed the
forint in recent years. The currency firmed 0.1
percent to 311.5, reaching its firmest level since Feb. 20.
    Fitch is unlikely to upgrade Hungary's credit rating in a
review due late on Friday as it awaits policy announcements
after the April 8 election, which the ruling Fidesz party is
expected to win, Equilor brokerage said in a note.
    Moody's may upgrade the credit ratings of Serbia and
Slovakia on Friday, Raiffeisen said in a note.
            CEE       SNAPSHOT   AT                         
            MARKETS             1020 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4400   25.4220    -0.07%    +0.40%
 crown      >                                       
 Hungary    <EURHUF=  311.5000  311.8000    +0.10%    -0.19%
 forint     >                                       
 Polish     <EURPLN=    4.1952    4.2039    +0.21%    -0.45%
 zloty      >                                       
 Romanian   <EURRON=    4.6570    4.6550    -0.04%    +0.49%
 leu        >                                       
 Croatian   <EURHRK=    7.4360    7.4375    +0.02%    -0.08%
 kuna       >                                       
 Serbian    <EURRSD=  117.9100  117.9400    +0.03%    +0.50%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1116.51  1118.170    -0.15%    +3.56%
 Budapest             38572.97  38670.63    -0.25%    -2.04%
 Warsaw                2304.62   2322.09    -0.75%    -6.36%
 Bucharest             8475.81   8471.65    +0.05%    +9.31%
 Ljubljana  <.SBITOP    814.92    816.84    -0.24%    +1.06%
 Zagreb                1856.37   1852.99    +0.18%    +0.73%
 Belgrade   <.BELEX1    740.89    735.21    +0.77%    -2.49%
 Sofia                  679.08    682.94    -0.57%    +0.24%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.8350    0.0660   +138bps     +6bps
   5-year   <CZ5YT=R    1.2760   -0.0110   +124bps     -3bps
   10-year  <CZ10YT=    1.9430    0.0020   +130bps     -2bps
   2-year   <PL2YT=R    1.5800    0.0030   +213bps     +0bps
   5-year   <PL5YT=R    2.5060    0.0360   +247bps     +2bps
   10-year  <PL10YT=    3.2790    0.0380   +263bps     +2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.97      1.08      1.24      0.91
 Hungary                  0.07      0.10      0.18      0.02
 Poland                   1.74      1.76      1.83      1.71
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto
Editing by Mark Heinrich)
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