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CEE MARKETS-CPI rise fails to boost Czech crown as dollar consolidates

a global selling of the dollar.

* Czech CPI rises, CNB chief says hike is optimal next move

* Czech markets remain split over interest rate outlook

* CEE currencies retreat as dollar decline does not continue

BUDAPEST, June 11 (Reuters) - A surprise rise in Czech inflation failed to strengthen the crown on Tuesday as Central European currencies take a pause this week after a rally caused The dollar's rally last year often caused selling in the region's currencies. They have been helped in recent weeks by the greenback's weakness amid strengthening expectations for Federal Reserve interest rate cuts. While inflation has been moderate in developed economies, it has been increased by a surge in wages in the European Union's fast-growing emerging markets. The correlation of the Czech crown's euro cross with the dollar's index versus a basket of currencies is the strongest since October. In the case of the forint, the correlation is the strongest in a year. With the dollar consolidating after the past weeks' losses, the crown and the forint eased 0.2 percent, to 25.658 and 320.55, respectively, while the zloty and the leu shed 0.1 percent. The rally brought the region's currencies to multi-week highs at or near technical resistance levels in recent days. The forint could only briefly pierce the 320 level, the crown got near 9-month highs, the zloty near 10-month highs, and the leu set a 5-month high. Czech annual inflation picked up to 2.9 percent in May, above analysts' 2.7 percent forecast. It would be optimal if the current pause in monetary policy changes is followed by more interest rate growth as rates are still not at normal levels, Czech central bank (CNB) Governor Jiri Rusnok said. That is a change compared to comments suggesting neutrality after the CNB's latest interest rate hike in early May. The comments still failed to boost the crown as the dollar firmed slightly, and analysts and dealers remained split over interest rate prospects. "May inflation confirmed our expectations that the central banks will hike rates one more time this year, probably in the second half of the year," said Jana Steckerova, economist at Komercni Banka. "(However) the market still does not believe the central bank will hike rates again," she added. Erste analyst Jiri Polansky said in a note that inflation, mainly boosted by a rise in food prices including a surge in the cost of potatoes, could slow down in the coming months. "However, a return of koruna on the appreciation trend and another CNB hike, which we expect to occur approx. in the mid of 2020, should return headline inflation towards the target during the year," he said.

CEE SNAPSHOT ATMARKETS 1055 CET

CURRENCI ES

Latest Previous Daily Changebid close change in 2019Czech <EURCZK= 25.6580 25.6200 -0.15% +0.19%crown >Hungary <EURHUF= 320.5500 320.0500 -0.16% +0.17%forint >Polish <EURPLN= 4.2677 4.2630 -0.11% +0.51%zloty >Romanian <EURRON= 4.7230 4.7190 -0.08% -1.46%leu >Croatian <EURHRK= 7.4110 7.4155 +0.06% -0.01%kuna >Serbian <EURRSD= 117.8700 117.9500 +0.07% +0.36%dinar >Note: calculated from 1800 CET

daily change

Latest Previous Daily Changeclose change in 2019Prague 1063.92 1059.220 +0.44% +7.84%

0

Budapest 41397.26 41159.57 +0.58% +5.77%Warsaw 2281.12 2282.51 -0.06% +0.20%Bucharest 8626.75 8583.26 +0.51% +16.84%Ljubljana <.SBITOP 866.90 879.66 -1.45% +7.79%>Zagreb 1896.01 1889.07 +0.37% +8.42%Belgrade <.BELEX1 732.99 731.88 +0.15% -3.77%

5>

Sofia 581.63 581.37 +0.04% -2.16%

BONDS

Yield Yield Spread Daily(bid) change vs Bund change

in

Czech spread

Republic

2-year <CZ2YT=R 1.6060 0.0060 +226bps +1bps

R>

5-year <CZ5YTR 1.5130 0.0020 +210bps -2bps

R>

10-year <CZ10YT= 1.6990 0.0470 +192bps +2bps

RR> Poland

2-year <PL2YT=R 1.6620 0.0100 +232bps +1bps

R>

5-year <PL5YT=R 2.0430 0.0870 +263bps +7bps

R>

10-year <PL10YT= 2.5380 0.0610 +276bps +3bps

RR>

FORWARD RATE AGREEMEN

T

3x6 6x9 9x12 3M

interban k

Czech Rep 2.15 2.07 1.97 2.18

<PRIBOR=

>

Hungary 0.29 0.40 0.53 0.18Poland 1.74 1.73 1.73 1.72

Note: FRA are for ask prices quotes

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(Additional reporting by Jason Hovet in Prague, editing by Ed Osmond)