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CORRECTED-CEE MARKETS-Polish CPI eases, dents zloty, bond yields

(Corrects 4th paragraph to show normalisation is expected from next year (not next week))

* Polish annual CPI falls more than forecast, matches CEE trend

* Zloty weakens to 3-month low, bond yields drop

* Analysts remain split over likely date of first rate hike

* Crown firms, Czech output, retail growth remains robust

BUDAPEST, March 15 (Reuters) - The zloty weakened and Polish government bond yields fell on Thursday after fresh data from Warsaw confirmed that inflation eased more than expected in Central Europe last month. Polish annual inflation eased to 1.4 percent, below analysts' 1.7 percent forecast, from January's 1.9 percent. The Polish central bank (NBP) lowered its inflation forecasts last week. Its governor, Adam Glapinski, shocked markets by saying any increase in the bank's record-low interest rates should not come before the end of 2020 in his view. Polish markets are still pricing in the start of a normalisation of interest rates from next year. But economic figures are closely watched for guidance over inflation trends which influence how loose monetary policy will be. The zloty weakened after the inflation data to trade at three-month lows 4.215 against the euro at 1013 GMT, down 0.4 percent from Wednesday. It remains near the range of the past two weeks of around 4.2 as investors weigh the negative impact from a possible delay in monetary tightening against the prospects for healthy economic growth. Polish 5-year government bond yields dropped 9 basis points to 2.39 percent. The 10-year yield slipped 5 basis points to 3.26 percent. Erste analyst Katarzyna Rzentarzewska said she would review her forecast that the first rate hike could come already in the first quarter of 2019. "Such a development brings downside risks for our current yield forecasts as well as supporting a weaker zloty," she said in a note. A strong inflation rebound in the second half of 2018 remains likely, Capital Economics said in a note. "As a result, we expect the first hike in the policy interest rate before the end of the year," the note added. The index of Warsaw-listed banks, which could benefit from higher interest rates, fell 0.7 percent, while the Warsaw bourse's bluechip index was up 0.25 percent, rising in tandem with the region's and Western Europe's main bourses. The shares of Poland's leading insurer PZU rose 1.8 percent, after the company reported a more than 50 percent rise in net profits in 2017. Stocks in Prague and Bucharest firmed slightly. Budapest markets are closed for the week due to Hungary's March 15 national holiday. The Czech crown firmed slightly to 25.424 against the euro after figures showed slower, but still strong, annual growth in industrial growth of 5.5 percent and an 8.2 percent surge in retail sales. Czech inflation also slowed below the central bank's (CNB) target in February, but the bank's Governor Jiri Rusnok said on Monday the trends still created room for interest rates to rise further. In euro zone members Slovenia and Slovakia, government bonds were little changed despite increased political uncertainty. Slovenian Prime Minister Miro Cerar resigned late on Wednesday after the Supreme Court annulled the result of a September referendum. Slovak Prime Minister Robert Fico has also offered to resign following mass protests over the killing of an investigative journalist.

CEE SNAPSHOT AT MARKETS 1113 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2018 Czech <EURCZK= 25.4240 25.4500 +0.10% +0.46% crown > Hungary <EURHUF= 311.2000 311.2900 +0.03% -0.09% forint > Polish <EURPLN= 4.2150 4.1983 -0.40% -0.92% zloty > Romanian <EURRON= 4.6625 4.6630 +0.01% +0.37% leu > Croatian <EURHRK= 7.4445 7.4425 -0.03% -0.19% kuna > Serbian <EURRSD= 118.3000 118.4600 +0.14% +0.17% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2018 Prague 1118.24 1116.690 +0.14% +3.72%

0

Budapest 38891.24 38891.24 +0.00% -1.23% Warsaw 2342.91 2335.97 +0.30% -4.81% Bucharest 8628.90 8601.51 +0.32% +11.29% Ljubljana <.SBITOP 819.72 823.27 -0.43% +1.65% > Zagreb 1847.17 1850.38 -0.17% +0.23% Belgrade <.BELEX1 741.89 743.84 -0.26% -2.36%

5>

Sofia 674.91 679.68 -0.70% -0.37%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 0.8670 0.1030 +145bps +12bps

R>

5-year <CZ5YT=R 1.2930 0.0240 +131bps +2bps

R>

10-year <CZ10YT= 1.9150 -0.0070 +133bps -1bps

RR> Poland

2-year <PL2YT=R 1.5060 -0.0350 +209bps -2bps

R>

5-year <PL5YT=R 2.3910 -0.0860 +241bps -9bps

R>

10-year <PL10YT= 3.2610 -0.0460 +267bps -5bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 0.95 1.06 1.22 0.90

<PRIBOR=

>

Hungary 0.08 0.11 0.18 0.03 Poland 1.73 1.74 1.75 1.71

Note: FRA are for ask prices quotes

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(Additional reporting by Luiza Ilie in Bucharest/Lidia Kelly in Warsaw Editing by Gareth Jones)