May 8, 2019 / 1:49 PM / 6 months ago

CEE MARKETS-Forint, Hungarian bonds ease ahead of expected CPI rise

    * Forint eases though Hungary's industrial output surges
    * Hungarian CPI data due on Thursday seen showing further
    * Hungarian government bonds miss firming of European peers
    * Serbian seen keeping rates on hold

 (Adds underperformance of Hungarian government bonds, new
analyst comment)
    By Sandor Peto and Aleksandar Vasovic
    BUDAPEST/BELGRADE, May 8 (Reuters) - Hungary's forint traded
near 5-month lows on Wednesday as robust industrial output data
did not change market expectations that the central bank (NBH)
will not rush into further monetary tightening despite a
continued rise in inflation.
    The forint eased a shade to 324.2 against the euro
by 1301 GMT, staying near its weakest levels since November, set
at 324.85 last week.
    Hungary's 10-year government bond yield was
fixed at 3.33 percent, up 1 basis point, returning to its
highest level in almost six months, a day before the
government's bi-weekly bond auctions.
    Poland's corresponding yield, meanwhile,
dropped further by 4 basis points to 2.93 percent as investors
bought government bonds in Europe and the United States amid
worries over economic growth.   
    Hungary's April inflation data due on Thursday are expected
to show a rise in the annual inflation to around 4 percent, the
top of the NBH's 2-4 percent target range.
    The forint weakened more than 3 percent in the past seven
weeks as the NBH increased its overnight deposit rate slightly
at its March meeting but dropped its guidance for gradual
monetary tightening.
    Surging wages have been boosting domestic demand in Central
Europe, fuelling a rise in consumer prices, but an economic
slowdown and persistent low interest rates in the euro zone have
dampened inflation pressure.
    Data released by Hungary on Wednesday showed that industrial
output surged by an annual 8 percent in March, exceeding all
forecasts, but the forint failed to benefit from the figures.

    "Pressure on the forint is not easing as the NBH insists on
its loose monetary policy despite the rising inflation
backdrop," Erste analysts said in a note.    
    Germany also released better-than-expected March industrial
output data on Wednesday, but the outlook remained gloomy.

    The data and some rebound in the euro did not provide
support for the forint, but the zloty firmed a shade
to 4.289.
    Elsewhere, the dinar firmed slightly ahead of the
Serbian central bank's Thursday meeting where it is expected to
keep its benchmark rate on hold at 3 percent as inflation
remains within its target despite robust economic growth.

    The bank has been buying the dinar in the market this year
to stem its strengthening, partly driven by increased domestic
spending around Easter by Serbians who work abroad.
    "Also there were several issuances of dinar-indexed T-bonds
which boosted demand," one dealer said, adding that the currency
could weaken to around 118.5 soon.
    Czech domestic markets were closed for a national holiday.
            CEE       SNAPSHOT   AT                         
            MARKETS             1501 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.7160   25.7410    +0.10%    -0.03%
 crown      >                                       
 Hungary    <EURHUF=  324.2000  324.1200    -0.02%    -0.96%
 forint     >                                       
 Polish     <EURPLN=    4.2909    4.2919    +0.02%    -0.03%
 zloty      >                                       
 Romanian   <EURRON=    4.7590    4.7565    -0.05%    -2.21%
 leu        >                                       
 Croatian   <EURHRK=    7.4085    7.4095    +0.01%    +0.02%
 kuna       >                                       
 Serbian    <EURRSD=  117.8800  117.9700    +0.08%    +0.36%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Budapest             41379.08  41084.57    +0.72%    +5.72%
 Warsaw                2225.19   2233.80    -0.39%    -2.26%
 Bucharest             8395.90   8419.18    -0.28%   +13.71%
 Ljubljana  <.SBITOP    874.91    881.04    -0.70%    +8.78%
 Zagreb                1838.53   1838.28    +0.01%    +5.13%
 Belgrade   <.BELEX1    735.03    736.38    -0.18%    -3.50%
 Sofia                  568.50    567.70    +0.14%    -4.37%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
   2-year   <PL2YT=R    1.6790    0.0040   +230bps     +1bps
   5-year   <PL5YT=R    2.2980   -0.0260   +277bps     -2bps
   10-year  <PL10YT=    2.9480   -0.0370   +300bps     -2bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.25      2.26      2.26      2.21
 Hungary                  0.38      0.54      0.72      0.16
 Poland                   1.74      1.75      1.78      1.72
 Note: FRA  are for ask prices                              
 (Reporting by Sandor Peto;
Editing by Andrew Cawthorne and Frances Kerry)
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