February 12, 2019 / 2:57 PM / in 5 months

CORRECTED-CEE MARKETS-Core CPI rise boosts forint, Hungarian central bank head to stay

 (Corrects "5-year paper" to "10-year paper" in penultimate
paragraph)
    * Hungary's core inflation reaches mid-point of target
    * Forint firms as expectations for monetary tightening rise
    * Forint firming does not spill over into other CEE markets
    * Leu eases, Romanian central bank says independence under
attack

    By Sandor Peto
    BUDAPEST, Feb 12 (Reuters) - The forint firmed on
Tuesday as a rise in Hungary's core inflation in January revived
expectations that the central bank (NBH) could start tightening
monetary policy soon.
    Gyorgy Matolcsy will be reappointed for another six years to
lead the NBH, Prime Minister Viktor Orban's press chief
announced, as the central bank approaches a pivotal moment
following years of loose monetary policy under his lead.

    The announcement came just hours after the first January
2019 inflation numbers from a major central European economy
showed that core inflation exceeded 3 percent, the NBH's
mid-term target, for the first time in five years.
    The Hungarian central bank's (NBH) own main core index,
adjusted for tax changes, rose to 3 percent from 2.9 percent in
January.
    Last month NBH Deputy Governor Marton Nagy sent the forint
to its strongest levels since May 2018, near 315 versus the
euro, by saying that monetary tightening could start if the core
inflation measure reached or exceeded 3 percent.
    The currency retreated afterwards beyond 320 as expectations
for monetary tightening in the region were hit by data showing a
slowdown in output growth in the euro zone and the European
Union's still robustly growing eastern economies.
    But Tuesday's inflation data boosted it again.
    At 1425 GMT, it traded at 318.01, firmer by 0.6 percent,
while the other main Central European currencies eased a shade.
    Analysts mostly still expect the NBH to keep its base rate
at a record low 0.9 percent this year.
    But some of them believe that the core inflation increase
could soon lead to a cut in forint liquidity released by the NBH
into interbank markets via its fx swap facility and an increase
in the short-term BUBOR rates.
    It is a risk to the NBH's credibility and the forint though,
if the bank prefers to wait and make only verbal interventions
in the hope that inflation will retreat, Commerzbank analyst
Tatha Ghose said in a note.
    "One could not blame the market if it became nervous in the
interim if inflation did not show signs of softening," she said.
    A rise in Hungary's government bond yields reflected that
risk. The 10-year paper traded at 2.73 percent, off intraday
peaks, but up by 5 basis points on the day, compared with a 1
basis point rise in the corresponding Bund yield.
    Elsewhere, the leu eased 0.1 percent to 4.7444
versus the euro, after central bank Governor Mugur Isarescu said
the bank's independence was under threat from a new tax on bank
assets tied to money market interest rates.  
    
            CEE       SNAPSHOT   AT                         
            MARKETS             1525 CET            
                      CURRENCI                              
                      ES                            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2019
 Czech      <EURCZK=   25.8800   25.8670    -0.05%    -0.67%
 crown      >                                       
 Hungary    <EURHUF=  318.0100  320.0600    +0.64%    +0.97%
 forint     >                                       
 Polish     <EURPLN=    4.3273    4.3252    -0.05%    -0.87%
 zloty      >                                       
 Romanian   <EURRON=    4.7444    4.7410    -0.07%    -1.91%
 leu        >                                       
 Croatian   <EURHRK=    7.4100    7.4075    -0.03%    +0.00%
 kuna       >                                       
 Serbian    <EURRSD=  118.1500  118.2000    +0.04%    +0.13%
 dinar      >                                       
 Note:      calculated from               1800 CET          
 daily                                              
 change                                             
                                                            
                      Latest    Previous  Daily     Change
                                close     change    in 2019
 Prague                1055.54  1046.430    +0.87%    +6.99%
                                       0            
 Budapest             40191.03  39769.48    +1.06%    +2.69%
 Warsaw                2369.85   2354.28    +0.66%    +4.09%
 Bucharest             7461.92   7371.61    +1.23%    +1.06%
 Ljubljana  <.SBITOP    833.24    832.41    +0.10%    +3.60%
            >                                       
 Zagreb                1751.74   1750.20    +0.09%    +0.17%
 Belgrade   <.BELEX1    707.54    709.37    -0.26%    -7.11%
            5>                                      
 Sofia                  572.07    573.40    -0.23%    -3.77%
                      BONDS                                 
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
                                                    in
 Czech                                              spread
 Republic                                           
   2-year   <CZ2YT=R    1.7490    0.0290   +232bps     +2bps
            R>                                      
   5-year   <CZ5YT=R    1.6050    0.0030   +198bps     -1bps
            R>                                      
   10-year  <CZ10YT=    1.7100    0.0080   +158bps     -1bps
            RR>                                     
 Poland                                                     
   2-year   <PL2YT=R    1.5700    0.0120   +214bps     +0bps
            R>                                      
   5-year   <PL5YT=R    2.1830   -0.0090   +256bps     -3bps
            R>                                      
   10-year  <PL10YT=    2.7310   -0.0020   +260bps     -2bps
            RR>                                     
            FORWARD   RATE      AGREEMEN                    
                                T                   
                      3x6       6x9       9x12      3M
                                                    interban
                                                    k
 Czech Rep                2.08      2.11      2.13      1.99
            <PRIBOR=                                
            >                                       
 Hungary                  0.38      0.61      0.82      0.15
                                                    
 Poland                   1.74      1.73      1.72      1.72
                                                    
 Note: FRA  are for ask prices                              
 quotes                                             
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 (Reporting by Sandor Peto
Editing by Frances Kerry)
  
 
 
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