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CEE MARKETS-Forint recovers after well-flagged central bank easing

* Forint picks up as cut in o/n depo rate factored in

* Easing measures in line with expectations -dealers

* Hungarian central bank says further easing is possible

(Recasts with Hungarian central bank decisions and comments) BUDAPEST, Sept 19 (Reuters) - The forint recovered after the Hungarian central bank (NBH) cut one of its key interest rates and reduced its inflation forecasts, as the moves had been widely expected. The forint has been trading at two and a half month lows against the euro as the NBH had well flagged that it could loosen monetary conditions even as the world's big central banks have started to tighten policy. The Czech Republic has also started to lift interest rates. The NBH, led by Gyorgy Matolcsy, a key ally of Prime Minister Viktor Orban who will face elections next year kept its base rate unchanged, but lowered its overnight deposit rate by 10 basis points to -0.15 percent as expected. In another measure, it set a 75 billion forint ($292 million) limit on its three-month deposit facility for the end of 2017, after a 300 billion forint limit for the end of September. Since analysts had expected a 150 billion forint cap, the reduction further eases monetary conditions, squeezing out more money from the facility than expected. But overall, Tuesday's measures did not exceed the market expectation, dealers said. The forint traded at 308.15 against the euro at 1353 GMT, firmer by half a percent from Monday when it touched its weakest levels since end-June near 310 against the euro. Other Central European currencies were mixed. "I went short in euro/forint yesterday and already on Friday, and I have taken profits now," one Budapest-based dealer said. "I made my money for the day, I can go home." But the central bank, which has used non-conventional monetary easing tools creatively in the past few years, may not have run out of gunpowder yet, dealers said. "What they have done was about what had been expected ... (but) if they want, they will find something else," another trader said. The bank said it would not cut three-month deposits again, but it remained ready to loosen monetary conditions further, and would increase the stock of its swap facilities to push longer-term bond yields lower. Yields on long-term Hungarian government bonds shed a few basis points. The 10-year yield dropped 3 basis points from morning levels to 2.79 percent. In comparison, Poland's 10-year yield was at 3.34 percent, up 8 basis points on the day. The NBH said loose policy was justified as inflation was taking longer than expected to reach its 3 percent target. It cut its 2018 and 2019 inflation forecasts slightly to 2.5 percent and 2.9 percent respectively.

CEE MARKETS SNAPSH AT 1553 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 26.090 26.126 +0.14 3.51% 0 0 % Hungary 308.15 309.57 +0.46 0.22% forint 00 00 % Polish zloty 4.2820 4.2891 +0.17 2.85%

%

Romanian leu 4.6005 4.5987 -0.04% -1.42% Croatian 7.4700 7.4765 +0.09 1.14% kuna % Serbian 118.73 119.00 +0.23 3.89% dinar 00 00 % Note: daily calculated previo close 1800 change from us at CET

STOCKS

Latest Previo Daily Change

us

close change in

2017

Prague 1046.6 1049.0 -0.22% +13.5 6 2 7% Budapest 38220. 38387. -0.43% +19.4 82 22 3% Warsaw 2506.1 2501.7 +0.18 +28.6 7 5 % 6% Bucharest 7978.2 7995.9 -0.22% +12.6 0 7 1% Ljubljana 806.60 798.81 +0.98 +12.4 % 0% Zagreb 1824.8 1796.6 +1.57 -8.52% 9 1 % Belgrade 728.86 731.83 -0.41% +1.60

%

Sofia 673.23 669.32 +0.58 +14.8 % 0%

BONDS

Yield Yield Spread Daily (bid) change vs change Bund in Czech spread

Republic

2-year 0.077 0.301 +077b +32bp ps s 5-year 0.201 0.085 +048b +10bp ps s 10-year 1.08 0.006 +064b +3bps

ps Poland

2-year 1.781 0.02 +247b +4bps

ps

5-year 2.674 0.055 +295b +7bps

ps

10-year 3.319 0.056 +288b +8bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.7 0.84 0.95 0

IBOR=>

Hungary <BU 0.11 0.11 0.14 0.12

BOR=>

Poland <WI 1.759 1.788 1.829 1.73

BOR=>

Note: FRA are for ask quotes prices ******************************************************** *****

($1 = 257.1400 forints)

(Reporting by Sandor Peto; Editing by Mark Potter and Susan Fenton)