June 25, 2019 / 2:50 PM / a year ago

CEE MARKETS-Forint rebounds on central bank CPI forecasts increase

 (Updates after Hungarian central bank meeting)
    By Sandor Peto
    BUDAPEST, June 25 (Reuters) - The forint rebounded
from a three-week low to a five-day high versus the euro on
Tuesday after the Hungarian central bank (NBH) raised its
inflation forecasts.
    The currency eased to 324.6 against the euro after the bank
kept interest rates on hold, disappointing some market
participants who had bet that it would raise its overnight
deposit rate from -0.05%.
    It jumped to 323.1, 0.1% firmer from Monday, after the bank
increased its growth and inflation forecasts, projecting that
prices would rise an average 3.3 percent in 2021.
    That is within the NBH's 2-4% target range, but the bank
also said in a statement that data in the second half of the
year will be key to the inflation outlook, and that it
maintained its cautious approach.
    Deputy Governor Marton Nagy also saw growing evidence of a
rise in pressure in the economy.  
    "Some people might think that if even the central bank sees
higher inflation, (the possibility of) an interest rate hike can
drift back into the picture," one Budapest-based currency dealer
    Expectations of monetary tightening have been revised after
European Central Bank chief Mario Draghi struck a dovish tone
last week.
    Some market participants still thought that low inflation
pressure from the euro zone could keep a lid on prices even
though a surge in wages across Central Europe is boosting
domestic demand and driving up consumer prices.
    "The market has calmed down, there is nothing to see here,"
a Budapest-based fixed income trader said, adding that trading
in the government bond market was lukewarm and driven by a drop
in yields in developed markets rather than domestic news.
    Hungary's 10-year bonds traded at a yield of 2.6%, down 2
basis points from Monday's fixing, while Poland's corresponding
yield shed 4 basis points to 2.31%.
    Central European currencies were mixed, with the Czech crown
 and the leu firming 0.1 percent and the
zloty easing slightly.
    Poland's M3 money supply data for May showed continuing
robust annual growth, even though the 9.9 percent figure was
slightly below analysts' 10 percent forecast.
    Some analysts said before the figures that they could herald
a rise in core inflation and worry some rate-setters at the
central bank, which sees interest rates on hold for years.
    As fears of a global trade war and U.S.-Iran sanctions left
investors gravitating toward less risky bonds, the region's
stocks weakened like those in other emerging markets.
            CEE       SNAPSHOT   AT                         
            MARKETS             1534 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.5400   25.5750    +0.14%    +0.65%
 crown      >                                       
 Hungary    <EURHUF=  323.2500  323.4500    +0.06%    -0.67%
 forint     >                                       
 Polish     <EURPLN=    4.2550    4.2535    -0.04%    +0.81%
 zloty      >                                       
 Romanian   <EURRON=    4.7190    4.7229    +0.08%    -1.38%
 leu        >                                       
 Croatian   <EURHRK=    7.3960    7.3973    +0.02%    +0.19%
 kuna       >                                       
 Serbian    <EURRSD=  117.7500  117.8300    +0.07%    +0.47%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1043.77  1056.180    -1.17%    +5.80%
 Budapest             40154.82  40475.09    -0.79%    +2.60%
 Warsaw                2318.91   2331.08    -0.52%    +1.86%
 Bucharest             8626.88   8625.92    +0.01%   +16.84%
 Ljubljana  <.SBITOP    890.23    890.23    +0.00%   +10.69%
 Zagreb                1905.02   1905.02    +0.00%    +8.93%
 Belgrade   <.BELEX1    722.28    720.44    +0.26%    -5.17%
 Sofia                  575.78    580.11    -0.75%    -3.14%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5740    0.0890   +230bps     +8bps
   5-year   <CZ5YT=R    1.3560    0.0350   +201bps     +4bps
   10-year  <CZ10YT=    1.5260    0.0040   +185bps     +2bps
   2-year   <PL2YT=R    1.5740   -0.0340   +230bps     -4bps
   5-year   <PL5YT=R    1.9340   -0.0220   +259bps     -1bps
   10-year  <PL10YT=    2.3310   -0.0280   +266bps     -1bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.18      2.08      1.99      2.17
 Hungary                  0.30      0.39      0.49      0.24
 Poland                   1.73      1.72      1.71      1.72
 Note: FRA  are for ask prices                              

 (Reporting by Marton Dunai and Sandor Peto; Editing by
Catherine Evans)
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