June 12, 2019 / 3:24 PM / a year ago

CEE MARKETS-Leu eases though CPI remains high; dollar rebound hits forint

    * Currencies fall in profit-taking after rally
    * Romania's May inflation higher than expected
    * Romanian central bank could tighten leu liquidity

 (Adds dollar rebound, zloty/forint, Czech auction result,
Croatian euro bond)
    By Sandor Peto
    BUDAPEST, June 12 (Reuters) - Central European currencies
and stocks mostly fell as risk aversion increased amid the
threat of the U.S.-China trade war and the dollar regained some
ground after U.S. inflation data.
    The leu did not benefit from higher-than-expected May
inflation. The crown also weakened after Tuesday's
Czech inflation data showed a pick-up, even though it regained
some ground on Wednesday.
    The region's main currencies have risen to multi-week or
multi-month highs against the euro in recent weeks as
expectations for Federal Reserve interest rate cuts led to a
selling of the dollar.
    The dollar's cautious rebound on Wednesday mainly affected
the forint, which is unlikely to receive support from a meeting
of the National Bank of Hungary on June 25, dealers said.

    The forint fell 0.3% against the euro to 321.9 by
1423 GMT.
    The zloty firmed slightly versus the euro, and
continued to rebound against the Hungarian unit,
firming through 75.5.
    Romania's leu shed 0.1% against the euro.
Remaining near five-month highs, it traded at 4.724.
    "This easing is not big, and following the past weeks'
surge, it is normal," one Budapest-based dealer said.       
    Romania's annual inflation was steady at 4.1% percent in
May, above the central bank's 1.5% to 3.5% target range and
    Inflation could retreat slightly by the year-end. But the
central bank will need to fight high core inflation, using its
variable rate tenders to stem a likely rise in liquidity in leu
markets in the coming months, ING Bank said in a note.
    "Given the global context, the probability for rate hikes
... is very low," the note said.
    Romanian bonds were mixed, with the yield on two-year debt
bid lower by 5 basis points at 3.46% and the 10-year yield
rising 9 basis points to 4.75%, while Poland's 10-year yield
dropped 4 basis points to 2.485%. 
    Expected continuing loose monetary policy in the euro zone
also fuels uncertainty over Czech interest rates.
    Czech forward rate agreements price in rate cuts, but some
analysts believe the Czech central bank's next move will be its
ninth rate increase since 2017, in a bid to fight inflation.
    Czech government bonds drew solid demand at an auction.
Supply can dry up in the summer, Komercni Banka traders said in
a note ahead of the sale.
    A drop in primary supply is also a risk in Hungary, which 
sold 529 billion forints ($1.87 billion) worth of a new
high-yield retail savings bond in a week, the biggest weekly
outflow ever recorded.
    "The debt agency AKK will want to see how it goes in the
next weeks, and if they change financing policy, more FX bond
repurchases is one of the options," one Budapest-based bond
trader said.
    A 10-year euro-denominated bond launched by Croatia was
robustly oversubscribed on Wednesday.    
            CEE       SNAPSHOT   AT                         
            MARKETS             1623 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.6080   25.6240    +0.06%    +0.39%
 crown      >                                       
 Hungary    <EURHUF=  321.9000  321.0500    -0.26%    -0.25%
 forint     >                                       
 Polish     <EURPLN=    4.2580    4.2628    +0.11%    +0.74%
 zloty      >                                       
 Romanian   <EURRON=    4.7245    4.7201    -0.09%    -1.49%
 leu        >                                       
 Croatian   <EURHRK=    7.4125    7.4135    +0.01%    -0.03%
 kuna       >                                       
 Serbian    <EURRSD=  117.8800  118.0100    +0.11%    +0.36%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1050.14  1061.890    -1.11%    +6.44%
 Budapest             40582.11  41234.66    -1.58%    +3.69%
 Warsaw                2274.22   2295.60    -0.93%    -0.11%
 Bucharest             8608.22   8633.12    -0.29%   +16.58%
 Ljubljana  <.SBITOP    870.54    871.97    -0.16%    +8.24%
 Zagreb                1912.85   1910.46    +0.13%    +9.38%
 Belgrade   <.BELEX1    731.10    731.70    -0.08%    -4.02%
 Sofia                  578.63    580.34    -0.29%    -2.66%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    1.5900    0.0150   +225bps     +2bps
   5-year   <CZ5YT=R    1.5040   -0.0260   +210bps     -2bps
   10-year  <CZ10YT=    1.6520    0.0060   +189bps     +1bps
   2-year   <PL2YT=R    1.6640    0.0100   +233bps     +1bps
   5-year   <PL5YT=R    2.0280   -0.0090   +262bps     +0bps
   10-year  <PL10YT=    2.5070   -0.0420   +274bps     -4bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                2.16      2.06      1.97      2.17
 Hungary                  0.29      0.40      0.53      0.18
 Poland                   1.73      1.72      1.71      1.72
 Note: FRA  are for ask prices                              
 (Additional reporting by Radu Marinas in Bucharest, Jason Hovet
in Prague and Alicja Ptak in Warsaw; editing by Larry King and
Gabrielle Tétrault-Farber)
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