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CEE MARKETS-Polish yields fall on CPI decline, Romania keeps rates on hold

* Polish March annual CPI drops, well below forecasts

* CPI surprise pushes zloty, Polish bond yields lower

* Romanian central bank surprises, keeping rates on hold

(Adds Romanian central bank decision, new comments) BUDAPEST/WARSAW, April 4 (Reuters) - The zloty and Polish bond yields fell after Warsaw data showed a surprise retreat in inflation, while the leu held steady even though the Romanian central bank disappointed investors who had bet on an interest rate hike. Flash figures from Poland showed a slump in annual inflation in March to 1.3 percent, below analysts' 1.65 percent forecast. "We begin to wonder, whether the monetary tightening happens at all during this economic cycle," Erste analyst Katarzyna Rzentarzewska said in a note. "If recent developments continue, it will become increasingly likely that the policy rate remains flat beyond 2019." The zloty fell a quarter of a percent against the euro after the figures, to rebound to 4.204 by 1351 GMT, still weaker by 0.1 percent from Tuesday. Polish government bond yields fell, with the 10-year yield touching its lowest levels since the last months of 2016, at 3.1 percent, after falling anyway in the past days due expected low supply and a decline in Poland's budget deficit to a record low.

Warsaw's bluechip stocks index fell in tandem with Budapest by 1.5 percent due to risk aversion after China hit back at U.S. plans to slap tariffs on Chinese goods.

Poland's data suggests that inflation may have continued to retreat across Central Europe after a decline in its annual rates in February in the region, with the exception of Romania. Decisions and comments from the region's central banks have tended to surprise on the dovish side in the past two months, including an interest rate cut by the Serbian central bank last month. On Wednesday Romania's central bank kept rates on hold even though nine out of 10 analysts projected a hike in a Reuters poll last month. The bank's Governor Mugur Isarescu somewhat tempered expectations last week. After Wednesday's decision he said the bank would watch the impacts of the two rate hikes it already delivered earlier this year, and that the leu's rate differential was favourable to the currency. The leu was flat, trading at 4.6615 against the euro. Hungary's forint firmed 0.2 percent against the euro and touched a two-week high, four days before a parliamentary election that Prime Minister Viktor Orban's Fidesz party is expected to win. Markets have priced in a Fidesz victory, one Budapest-based currency dealer said. "That would represent stability and predictability, while an opposition win would mean uncertainty," the dealer said.

CEE SNAPSHOT AT MARKETS 1551 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2018 Czech <EURCZK= 25.3120 25.3350 +0.09% +0.91% crown > Hungary <EURHUF= 311.3500 311.9200 +0.18% -0.14% forint > Polish <EURPLN= 4.2040 4.1994 -0.11% -0.66% zloty > Romanian <EURRON= 4.6620 4.6611 -0.02% +0.38% leu > Croatian <EURHRK= 7.4340 7.4303 -0.05% -0.05% kuna > Serbian <EURRSD= 118.1700 118.1900 +0.02% +0.28% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2018 Prague 1112.91 1116.660 -0.34% +3.22%

0

Budapest 37316.10 37867.54 -1.46% -5.23% Warsaw 2205.05 2239.15 -1.52% -10.41% Bucharest 8732.60 8764.69 -0.37% +12.62% Ljubljana <.SBITOP 824.00 819.09 +0.60% +2.19% > Zagreb 1800.70 1798.11 +0.14% -2.29% Belgrade <.BELEX1 746.34 746.98 -0.09% -1.77%

5>

Sofia 653.48 653.14 +0.05% -3.54%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 0.7830 -0.0550 +137bps -5bps

R>

5-year <CZ5YT=R 1.2350 -0.0520 +133bps -5bps

R>

10-year <CZ10YT= 1.8300 -0.0290 +133bps -2bps

RR> Poland

2-year <PL2YT=R 1.4810 -0.0330 +207bps -3bps

R>

5-year <PL5YT=R 2.3260 -0.0610 +242bps -6bps

R>

10-year <PL10YT= 3.1160 -0.0750 +262bps -7bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 0.96 1.06 1.22 0.90

<PRIBOR=

>

Hungary 0.07 0.10 0.18 0.03 Poland 1.74 1.75 1.77 1.70

Note: FRA are for ask prices quotes

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(Reporting by Sandor PetoEditing by Alison Williams)