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CEE MARKETS-Zloty firms as inflation data leaves rate hike expectations intact

intact@

* Polish Oct annual CPI drops to 2.1 pct as expected

* Polish FRAs price in interest rate hike in 12 months

* Hungarian central bank launches quoting for six-month BUBOR

* Figures show foreigners further boosted Czech bond holdings

(Recasts with Polish inflation figures, rise of Czech stock index) BUDAPEST/WARSAW, Oct 31 (Reuters) - Poland's zloty firmed on Tuesday after figures showing annual inflation dropped slightly in October from a five-year high as forecast left expectations the central bank will raise interest rates next year intact. Inflation dropped to 2.1 percent from September's 2.2 percent, the highest reading since 2012. The zloty firmed 0.1 percent to 4.244 against the euro. Forward rate agreements show investors are pricing in a 25 basis point hike in the Polish central bank's key rate -- currently 1.5 percent -- within 12 months. Tuesday's inflation figures did not change those expectations, said Grzegorz Maliszewski, senior economist at Bank Millennium. "In (the) mid term, inflation will accelerate due to demand factors and base effects, so we maintain the scenario of rate hike in the second half of next year," he said. The Czech crown also firmed slightly, to 25.657 against the euro. A Reuters poll showed analysts expect the Czech central bank, which began raising interest rates in August, to lift its 0.25 percent two-week repo rate again on Thursday. All but one of 16 analysts said they expected a 25 basis point hike, and one forecast 50 basis points. Government figures on Tuesday showed foreign investors nearly doubled their Czech domestic government bond holdings in September compared to a year earlier, increasing the risk of a sell-off if investors no longer expect the crown to strengthen. Analysts at Raiffeisen turned their "sell" recommendation for Czech bonds into a "hold", saying the rise in Czech yields had created a decent premium over yields on German Bunds. Recent comments from the European Central Bank signalled Bund yields -- the benchmark for the euro zone -- could stay "at depressed levels for longer", they said. In contrast to the Polish and Czech central banks, Hungary's loosening of its monetary policy was further underpinned by its announcement on Tuesday to extend mandatory quotation to the six-month BUBOR interbank rates <BUBOR). "It can push the rate lower by a few basis points (from 0.07 percent)," one Budapest-based trader said, adding that the bank would need further measures to meet its goal to push long-term yields lower. The forint eased 0.1 percent to 311.55 against the euro. In equities markets, Prague's main index reached its highest level in more than six years, mainly driven by a 2 percent rise in the shares of CEZ to a two-year high. The state-controlled electricity producer said it sold its power plant in Varna to Bulgaria's SIGDA OOD.

CEE MARKETS SNAPSH AT 1455 CET

OT CURRENCIES

Latest Previo Daily Change

us

bid close change in

2017

Czech crown 25.657 25.666 +0.04 5.26% 0 0 % Hungary 311.55 311.28 -0.09% -0.88% forint 00 00 Polish zloty 4.2440 4.2473 +0.08 3.77%

%

Romanian leu 4.6010 4.5983 -0.06% -1.43% Croatian 7.5230 7.5225 -0.01% 0.43%

kuna

Serbian 119.15 119.32 +0.14 3.52% 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 1065.5 1064.0 +0.15 +15.6 8 0 % 2% Budapest 39821. 39881. -0.15% +24.4 47 22 3% Warsaw 2518.5 2517.0 +0.06 +29.2 5 3 % 9% Bucharest 7818.1 7845.5 -0.35% +10.3 8 1 5% Ljubljana 796.92 796.53 +0.05 +11.0 % 6% Zagreb 1881.0 1881.0 +0.00 -5.71% 1 1 % Belgrade 730.72 726.16 +0.63 +1.86 % % Sofia 670.66 669.99 +0.10 +14.3 % 6%

BONDS

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

Republic

2-year 0.404 0.108 +115b +10bp ps s 5-year 0.723 -0.036 +106b -6bps

ps

10-year 1.568 -0.045 +119b -6bps

ps Poland

2-year 1.611 -0.004 +236b -2bps

ps

5-year 2.662 -0.009 +300b -3bps

ps

10-year 3.442 -0.002 +306b -2bps

ps

FORWARD RATE AGREEMENT 3x6 6x9 9x12 3M

interb ank

Czech Rep <PR 0.87 1.06 1.21 0

IBOR=>

Hungary <BU 0.07 0.11 0.1 0.03

BOR=>

Poland <WI 1.774 1.834 1.927 1.73

BOR=>

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

(Additional reporting by Bartosz Chmielewski in Warsaw; Editing