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CEE MARKETS-Crown leads fx rise as Czechs add to upside CPI surprises

Sandor Peto and Jason Hovet

* Crown firms after Jan CPI comes in at 2.5 pct vs 2.2 pct fcast

* Core inflation rise continues to buoy the forint

* Zloty steady after higher-than-expected C/A deficit

(Adds Czech central bank and analyst comments, Polish data) BUDAPEST/PRAGUE, Feb 13 (Reuters) - The crown led Central European currencies higher on Wednesday after Czech annual inflation came in well above forecasts, adding to upside surprises in consumer price indexes the region. Czech annual inflation jumped to 2.5 percent in January from two percent in December, well above a 2.2 percent forecast, and analysts said a rise in energy bills early this year could maintain upside inflation pressure. The Czech central bank (CNB) said the figure, pushed above its forecast by higher core inflation and an early pick-up in food prices, represented a risk of higher inflation going forward. The Czech crown firmed by 0.2 percent against the euro to 25.81, while the forint and the leu gained 0.1 percent. The units ignored a firming of the dollar which in the past year often caused currency selling in emerging markets, and a warning from CNB Vice-Governor Tomas Nidetzky that the Czech economy would get a hit if Britain were to leave the European Union without a deal. But the crown remained weaker than the 25.6 average rate projected by the CNB for the first quarter. The bank kept interest rates on hold at its meeting last week, remaining open to further hikes. CNB Governor Jiri Rusnok said after the decision that a rate hike would not have certainly strengthened the crown. Czech government bond yields rose after the inflation data. The 10-year yield rose by four basis points to 1.72 percent, compared with a six basis point drop in the corresponding Hungarian yield to 2.69 percent. "We continue to forecast one interest rate hike this year in Q3, but today's print skews the risks to our forecast towards earlier and potentially more rate hikes," Goldman Sachs analysts Kevin Daly and Timon Dreyer said in a note. "While Czech rates have risen at the front end by close to 10bp today, the market is still pricing in less than a full rate hike for this year and close to a full rate cut for next year," they said, adding that market-implied rates remained too low. Elsewhere, the forint got a boost already on Tuesday, after Hungary's tax-adjusted annual core inflation reached 3 percent, the threshold that central bank deputy governor Marton Nagy said last month would be a signal that the bank needs to start monetary tightening. Romanian figures released on Wednesday showed that annual inflation was flat at 3.3 percent. That was a tad above analysts' expectations, but it is unlikely to trigger action from the Romanian central bank which is deeply engaged in a row with the government over a new tax on banks' assets tied to interbank interest rates. The zloty was steady after December Polish data showed a higher-than-expected 1.4 billion euro current account deficit.

CEE SNAPSHOT ATMARKETS 1501 CET

CURRENCI ES

Latest Previous Daily Changebid close change in 2019Czech <EURCZK= 25.8100 25.8670 +0.22% -0.40%crown >Hungary <EURHUF= 318.2200 318.5500 +0.10% +0.90%forint >Polish <EURPLN= 4.3300 4.3295 -0.01% -0.93%zloty >Romanian <EURRON= 4.7425 4.7481 +0.12% -1.87%leu >Croatian <EURHRK= 7.4031 7.4075 +0.06% +0.09%kuna >Serbian EURRSD= 118.0400 118.1200 +0.07% +0.22%dinar >Note: calculated from 1800 CET

daily change

Latest Previous Daily Changeclose change in 2019Prague 1061.41 1057.320 +0.39% +7.59%

0

Budapest 40150.77 40488.09 -0.83% +2.59%Warsaw 2347.90 2370.99 -0.97% +3.13%Bucharest 7616.83 7523.83 +1.24% +3.16%Ljubljana <.SBITOP 831.34 833.24 -0.23% +3.37%>Zagreb 1754.45 1750.00 +0.25% +0.32%Belgrade <.BELEX1 702.19 707.54 -0.76% -7.81%

5>

Sofia 573.22 573.32 -0.02% -3.57%

BONDS

Yield Yield Spread Daily(bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 1.8270 0.0790 +238bps +7bps

R>

5-year <CZ5YT=R 1.6790 0.0770 +204bps +7bps

R>

10-year <CZ10YT= 1.7530 0.0430 +161bps +3bps

RR> Poland

2-year <PL2YT=R 1.5460 -0.1090 +210bps -12bps

R>

5-year <PL5YT=R 2.1910 0.0010 +255bps -1bps

R>

10-year <PL10YT= 2.7220 -0.0080 +258bps -2bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 2.08 2.11 2.13 1.99

<PRIBOR=

>

Hungary 0.38 0.59 0.80 0.15Poland 1.74 1.73 1.73 1.72

Note: FRA are for ask prices quotes

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(Reporting by Sandor Peto; Editing by Andrew Cawthorne, William Maclean)