October 10, 2018 / 11:23 AM / 7 months ago

CEE MARKETS-Currencies weaken, leu steady after CPI surprise

    * Romania Sept CPI at 5 pct vs 4.8 pct analyst forecast
    * CEE currencies track euro, retreat or hold steady vs
    * Czech bond yields edge up despite Q4 issuance cut

    By Sandor Peto and Luiza Ilie
    BUDAPEST/BUCHAREST, Oct 10 (Reuters) - Central European
currencies eased or moved sideways on Wednesday after the euro
gave up some of its overnight gains against the dollar.
    The euro's exchange rate against the dollar is often tracked
by the currencies of the region, which is tightly integrated
with the euro zone.
    The forint and the zloty had eased 0.1
percent against the euro by 1043 GMT, while the Czech crown and
the leu were flat.
    Romania's annual inflation in September stayed near its
highest level in almost six years, according to data released on
    It slowed to 5 percent from 5.1 percent in August, above
analysts' 4.8 percent forecast. It is the region's highest
inflation rate and is still near a peak of 5.4 percent hit in
    The central bank has increased interest rates three times
this year to fight inflation and lowered its inflation forecasts
two months ago.
    It sees inflation returning to the top of its 1.5-3.5
percent target range by the end of 2018.
    After the higher-than-expected September figures, investors
will be closely watching to see if the bank returns to a more
hawkish rhetoric.
    However, Ciprian Dascalu, ING's chief economist in Romania
said that was unlikely to happen.
    "It would be hard for the central bank to revise its
inflation forecast upward based on an upward surprise from
volatile food prices for one month," he said.
    Romanian government bonds were little changed.
    The only other central bank in the region which has started
to raise rates after several years of loose policy is the Czech
central bank (CNB). Analysts say it may increase rates further
at its meeting next month.
    Czech inflation retreated to 2.3 percent in September,
according to data published on Tuesday, closer to the CNB's 2
percent target.
    But the bank's Vice-Governor Mojmir Hampl said he would vote
for a rate hike at the Nov. 1 meeting.
    The crown, trading at 25.81, is still weaker than the bank's
earlier forecasts, providing an argument for further CNB
    The 10-year Czech government bond yield was 2 basis points
higher at 2.19 percent.
    The government sold 4 billion crowns ($178.28 million) worth
of 9-year and 15-year bonds, as planned, at an auction. 
    The finance ministry cut the planned debt issuance for the
rest of 2018 earlier this week.
    Demand for Czech bonds is usually lower at the end of the
year as banks typically shrink their balance sheets as
contributions to a state-run resolution fund are calculated
based on deposits.
    Investors were also watching whether U.S. Treasuries resume
their recent rise and whether Italy cuts its budget deficit
target to relieve its government bond yields from upwards
pressure, analysts said.
            CEE       SNAPSHOT   AT                         
            MARKETS             1243 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.8100   25.8110    +0.00%    -1.04%
 crown      >                                       
 Hungary    <EURHUF=  324.8000  324.4000    -0.12%    -4.27%
 forint     >                                       
 Polish     <EURPLN=    4.3070    4.3050    -0.05%    -3.03%
 zloty      >                                       
 Romanian   <EURRON=    4.6640    4.6650    +0.02%    +0.34%
 leu        >                                       
 Croatian   <EURHRK=    7.4100    7.4200    +0.13%    +0.27%
 kuna       >                                       
 Serbian    <EURRSD=  118.3100  118.4900    +0.15%    +0.16%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1097.75  1095.780    +0.18%    +1.82%
 Budapest             37160.35  37109.24    +0.14%    -5.63%
 Warsaw                2224.99   2251.32    -1.17%    -9.60%
 Bucharest             8560.64   8545.34    +0.18%   +10.41%
 Ljubljana  <.SBITOP    831.65    836.56    -0.59%    +3.13%
 Zagreb                1773.87   1775.19    -0.07%    -3.74%
 Belgrade   <.BELEX1    732.56    730.75    +0.25%    -3.59%
 Sofia                  618.15    617.13    +0.17%    -8.75%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.7160    0.1830   +227bps    +18bps
   5-year   <CZ5YT=R    1.9000    0.0490   +199bps     +4bps
   10-year  <CZ10YT=    2.1870    0.0210   +164bps     +1bps
   2-year   <PL2YT=R    1.6090   -0.0100   +216bps     -1bps
   5-year   <PL5YT=R    2.6150    0.0200   +271bps     +1bps
   10-year  <PL10YT=    3.2980    0.0090   +275bps     +0bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.02      2.20      2.33      1.75
 Hungary                  0.47      0.79      1.14      0.17
 Poland                   1.78      1.81      1.87      1.72
 Note: FRA  are for ask prices                              

($1 = 22.4370 Czech crowns)

 (Additional reporting by Jason Hovet in Prague; Editing by
Kirsten Donovan)
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