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UPDATE 1-CEE MARKETS-Core CPI rise boosts forint, Hungarian central bank head to stay

Sandor Peto

to stay@

* 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

* Leu eases, Romanian central bank says independence under attack

(Adds Hungarian central bank head's renomination, rise in Hungarian bond yields, Romanian central bank chief comment) 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. Gyorgy Matolcsy will be reappointed for another six years to lead the NBH, Prime Minister Viktor Orban's press chief announced, as the central bank approaches a pivotal moment following years of loose monetary policy under his lead.

The announcement came just hours after the first January 2019 inflation numbers from a major central European economy showed that core inflation exceeded 3 percent, the NBH's mid-term target, for the first time in five years. The Hungarian central bank's (NBH) own main core index, adjusted for tax changes, rose to 3 percent from 2.9 percent in January. Last month NBH Deputy Governor Marton Nagy sent the forint to its strongest levels since May 2018, near 315 versus the euro, by saying that monetary tightening could start if the core inflation measure reached or exceeded 3 percent. The currency retreated afterwards beyond 320 as expectations for monetary tightening in the region were hit by data showing a slowdown in output growth in the euro zone and the European Union's still robustly growing eastern economies. But Tuesday's inflation data boosted it again. At 1425 GMT, it traded at 318.01, firmer by 0.6 percent, while the other main Central European currencies eased a shade. 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. It is a risk to the NBH's credibility and the forint though, if the bank prefers to wait and make only verbal interventions in the hope that inflation will retreat, Commerzbank analyst Tatha Ghose said in a note. "One could not blame the market if it became nervous in the interim if inflation did not show signs of softening," she said. A rise in Hungary's government bond yields reflected that risk. The 5-year paper traded at 2.73 percent, off intraday peaks, but up by 5 basis points on the day, compared with a 1 basis point rise in the corresponding Bund yield. Elsewhere, the leu eased 0.1 percent to 4.7444 versus the euro, after central bank Governor Mugur Isarescu said the bank's independence was under threat from a new tax on bank assets tied to money market interest rates.



Latest Previous Daily Changebid close change in 2019Czech <EURCZK= 25.8800 25.8670 -0.05% -0.67%crown >Hungary <EURHUF= 318.0100 320.0600 +0.64% +0.97%


Polish <EURPLN= 4.3273 4.3252 -0.05% -0.87%zloty >Romanian <EURRON= 4.7444 4.7410 -0.07% -1.91%leu >Croatian <EURHRK= 7.4100 7.4075 -0.03% +0.00%kuna >Serbian <EURRSD= 118.1500 118.2000 +0.04% +0.13%dinar >Note: calculated from 1800 CET

daily change

Latest Previous Daily Changeclose change in 2019Prague 1055.54 1046.430 +0.87% +6.99%


Budapest 40191.03 39769.48 +1.06% +2.69%Warsaw 2369.85 2354.28 +0.66% +4.09%Bucharest 7461.92 7371.61 +1.23% +1.06%Ljubljana <.SBITOP 833.24 832.41 +0.10% +3.60%>Zagreb 1751.74 1750.20 +0.09% +0.17%Belgrade <.BELEX1 707.54 709.37 -0.26% -7.11%


Sofia 572.07 573.40 -0.23% -3.77%


Yield Yield Spread Daily(bid) change vs Bund change


Czech spread


2-year <CZ2YT=R 1.7490 0.0290 +232bps +2bps


5-year <CZ5YT=R 1.6050 0.0030 +198bps -1bps


10-year <CZ10YT= 1.7100 0.0080 +158bps -1bps

RR> Poland

2-year <PL2YT=R 1.5700 0.0120 +214bps +0bps


5-year <PL5YT=R 2.1830 -0.0090 +256bps -3bps


10-year <PL10YT= 2.7310 -0.0020 +260bps -2bps




3x6 6x9 9x12 3M

interban k

Czech Rep 2.08 2.11 2.13 1.99



Hungary 0.38 0.61 0.82 0.15Poland 1.74 1.73 1.72 1.72

Note: FRA are for ask prices quotes



(Reporting by Sandor Peto Editing by Frances Kerry)