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UPDATE 1-CEE MARKETS-Czech crown drops with CPI surprise, leu dips after Romanian govt falls

Romanian govt falls@ (Updates with Romania govt fall, crown losses, comment) PRAGUE, Oct 10 (Reuters) - The Czech crown had its biggest fall in 2-1/2 months on Thursday after a sharp drop in consumer prices dented rate hike expectations, while the leu eased when Romanian lawmakers toppled the government in a vote, extending political uncertainty. Other currencies stuck in recent ranges, with the Hungarian forint gaining 0.2% to 333.50 to the euro and Poland's zloty trading flat at 4.321. The crown was the biggest mover, losing almost 0.4% to 25.892 to the euro after data showed prices dropped 0.6% month-on-month in September, pulling the headline year-on-year rate down to 2.7% and away from the upper end of the central bank's preferred range around its 2% target. With central Europe's economies still on solid ground, and having not yet felt the full impact of a slowdown in Germany and the euro zone, central Europe's rate setters have largely shifted into wait-and-see mode even as the European Central Bank eases policy. The Czech central bank board, though, debated rate hikes at its Sept. 25 meeting before voting 5-2 to maintain the base rate at 2.00%. The two dissenters pushed for a 25-basis-point increase and Governor Jiri Rusnok said the debate would continue at the next meeting in November. The crown's drop on Thursday put it at the weakest since the day before that last meeting. Analysts said the bank's November meeting would again be tight although most see stability ahead as external economic risks would likely outweigh domestic price pressures. Goldman Sachs analysts said, despite their view of stable rates ahead, September inflation data would not eliminate rate hike chances. "Todays downside surprise somewhat reduces those risks but, given that the surprise was driven entirely by food prices, it is less significant for monetary policy than the headline decline suggests," the bank said. In Romania, the leu fell to its lowest level this month at 4.754 to the euro, down 0.1%. The leu has lost 2.1% so far in 2019, making it the second-worst performing behind the Hungarian forint. It has dropped 0.7% since Prime Minister Viorica Dancila's cabinet lost its majority in August after a coalition junior ally, ALDE, quit over policy disagreements, making it vulnerable. On Thursday a majority of lawmakers backed a no-confidence vote, opening the way for a transitional government until a parliamentary election in late 2020. Raiffeisen said before the vote that the political crisis would weigh on markets going forward but the "magnitude of such reaction may be limited taking past examples of political crises into account."

CEE MARKETS SNAPSHOT AT

1434 CET CURRENCIES

Latest Previous Daily Changebid close change in 2019EURCZK Czech crown 25.8920 25.8005-0.35% -0.71%EURHUF= Hungary forint 333.2000 334.3150+0.33% -3.64%EURPLN= Polish zloty 4.3160 4.3215+0.13% -0.61%EURRON= Romanian leu 4.7540 4.7500-0.08% -2.10%EURHRK= Croatian kuna 7.4275 7.4270-0.01% -0.24%EURRSD= Serbian dinar 117.4300 117.4600+0.03% +0.74%Note: daily change calculated from 1800 CETLatest Previous Daily Changeclose change in 2019.PX Prague 997.03 996.6200+0.04% +1.06%.BUX Budapest 39398.35 39544.62-0.37% +0.66%.WIG20 Warsaw 2115.53 2134.37-0.88% -7.08%.BETI Bucharest 9513.89 9514.48-0.01% +28.85%.SBITOP Ljubljana 870.11 864.92+0.60% +8.19%.CRBEX Zagreb 1940.52 1929.28+0.58% +10.96%.BELEX15 Belgrade 747.70 747.93-0.03% -1.84%.SOFIX Sofia 557.47 559.26-0.32% -6.22%

BONDS

Yield Yield Spread Daily(bid) change vs Bund change in

Czech Republic spread

CZ2YT=RR 2-year 1.2540 -0.0110+197bps -4bpsCZ5YT=RR 5-year 1.0220 -0.0370+177bps -8bpsCZ10YT=RR 10-year 1.1730 -0.0140+169bps -5bps

Poland

PL2YT=RR 2-year 1.5010 -0.0020+221bps -3bpsPL5YT=RR 5-year 1.6920 0.0270+244bps -1bpsPL10YT=RR 10-year 1.9220 0.0260+244bps -1bpsFORWARD RATE AGREEMENT3x6 6x9 9x12 3M interbankCzech Rep 2.22 2.17 2.10

2.17

Hungary 0.26 0.31 0.32

0.21

Poland 1.73 1.72 1.67

1.72

Note: FRA quotes are for ask prices*************************************************************

(Reporting by Robert Muller and Jason Hovet in Prague and Luiza Ilie and Timothy Heritage; Editing by Alexander Smith and Ken Ferris)