CEE MARKETS-Forint firms as core inflation jumps to 5-year-high

* 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

* Czech, Romania next to release CPI data on Wednesday

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. The first January 2019 inflation numbers from a major central European economy showed the annual headline index unchanged at 2.7 percent. But core inflation jumped to a five-year high of 3.2 percent from 2.8 percent in December. The Hungarian central bank's (NBH) main core index, adjusted for tax changes, rose to 3 percent from 2.9 percent. Last month the forint surged to its strongest level since May 2018, near 315 versus the euro, after NBH Deputy Governor Marton Nagy said monetary tightening could start if the core measure reached or exceeded 3 percent, the mid-point of the bank's 2-4 percent target range. The currency retreated afterwards beyond 320 as expectations for monetary tightening in the region got hit by data showing a slowdown in output growth in the euro zone and the European Union's still robustly growing eastern economies. The forint strengthened as much as half a percent on Tuesday to 318.4 after the data before retreating slightly to 319.15 by 0923 GMT, still up 0.3 percent. 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. "The NBH could start monetary tightening in March by reducing the stock of foreign currency swap deals, while increasing overnight interest rates at the same time," ING analyst Peter Virovacz said in a note. The bank's overnight deposit rate stands at -0.15 percent. Erste analyst Orsolya Nyeste said tightening was unlikely to start before the second quarter. "We continue to think however that this could be a slow and a gradual process, and the 3M BUBOR rate is unlikely to reach the level of the policy rate before the year-end," she said. Hungarian government bond yields rose a touch more than their regional peers and German Bund yields. The 10-year Hungarian paper traded at 2.72 percent, up 4 basis points. Elsewhere, the Czech Republic and Romania are due to publish January inflation data on Wednesday. The crown was a shade firmer at 25.855 versus the euro. The leu was steady at 4.742, and Romanian stocks regained some ground after a fall on Monday amid an escalating row between the government and the central bank over a new bank tax linked to interbank interest rates.

CEE SNAPSHOT AT MARKETS 1023 CET

CURRENCI ES

Latest Previous Daily Change bid close change in 2019 Czech <EURCZK= 25.8550 25.8670 +0.05% -0.57% crown > Hungary <EURHUF= 319.1500 320.0600 +0.29% +0.61% forint > Polish <EURPLN= 4.3280 4.3252 -0.06% -0.89% zloty > Romanian <EURRON= 4.7420 4.7410 -0.02% -1.86% leu > Croatian <EURHRK= 7.4053 7.4075 +0.03% +0.06% kuna > Serbian <EURRSD= 117.9800 118.2000 +0.19% +0.27% dinar > Note: calculated from 1800 CET

daily change

Latest Previous Daily Change close change in 2019 Prague 1057.49 1046.430 +1.06% +7.19%

0

Budapest 39980.42 39769.48 +0.53% +2.15% Warsaw 2367.33 2354.28 +0.55% +3.98% Bucharest 7426.64 7371.61 +0.75% +0.58% Ljubljana <.SBITOP 829.51 832.41 -0.35% +3.14% > Zagreb 1751.36 1750.20 +0.07% +0.15% Belgrade <.BELEX1 708.92 709.37 -0.06% -6.93%

5>

Sofia 571.04 573.40 -0.41% -3.94%

BONDS

Yield Yield Spread Daily (bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 1.8880 0.1670 +246bps +16bps

R>

5-year <CZ5YT=R 1.6110 0.0100 +199bps -1bps

R>

10-year <CZ10YT= 1.7230 0.0210 +160bps +1bps

RR> Poland

2-year <PL2YT=R 1.5490 -0.0090 +212bps -2bps

R>

5-year <PL5YT=R 2.1910 -0.0010 +257bps -2bps

R>

10-year <PL10YT= 2.7490 0.0160 +262bps +1bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 2.08 2.11 2.13 1.99

<PRIBOR=

>

Hungary 0.36 0.57 0.78 0.15 Poland 1.74 1.73 1.71 1.72

Note: FRA are for ask prices quotes

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(Reporting by Sandor Peto)