Wires

CEE MARKETS-Forint underperforms on surprise increase in inflation

Krisztina Than

BUDAPEST, Nov 8 (Reuters) - Hungary's forint eased on Friday versus the euro and underperformed its Central European peers as October inflation came in above expectations while the Hungarian central bank has been sticking to its ultra-loose monetary policy. Headline inflation picked up to 2.9% in October, while the central bank's key tax-adjusted inflation number also rose to 3.7% in October from 3.4% in September, data showed.

"Today's data also signals ... that after the low in September, inflation started to accelerate in October and this is expected to last until the year end and it is conceivable that the headline figure will climb close to 4% at the end of the year," ING analyst Peter Virovacz said in a note. Hungary's benchmark base rate is at 0.9% while the overnight deposit rate is at -0.05%. "This is one factor in the forint's weakness ... that we have the loosest monetary policy in the region," one dealer in Budapest said. She said the forint's slide this week could also be due to technical factors. The Hungarian currency failed to firm past a key resistance at 328, and then it resumed its easing trend, falling to 333.60 on Friday. At 0954 GMT the forint was down 0.3% versus the euro, while the Czech crown and the Polish zloty were both weaker by 0.1%. The forint has eased 3.75% so far this year. Central banks in Central Europe have adopted a cautious stance lately, assessing the potential impact of a slowdown in the euro zone on economies of the eastern region of the EU. So far, the region's economic growth has been robust but there are signs of a moderation. Next week's releases in CEE countries of flash GDP data for the third-quarter are expected to signal that a slowdown is around the corner, despite solid domestic demand growth and tight labour markets, analysts at Morgan Stanley said. "Looking further ahead, we think that the slowdown in growth will become more visible, more specifically in 1H20," they said. "This is likely to add to CEE central bank concerns and will introduce further uncertainty about the growth outlook for the region. Yet, we think that domestic inflation pressures will remain in place for a while, which we think will prevent the regional central banks from turning outright dovish for a while." On Thursday, the Czech central bank kept its rates on hold, but the votes showed a continuing debate over a possible hike. The bank voted 5-2 to keep rates on hold. Czech central bank Governor Jiri Rusnok said the bank's preference to keep interest rates stable and not hike like its forecast model suggests would not lead to any substantial rise in inflation. The Czech central bank is one of the few in Europe still debating a rate hike even as the European Central Bank and U.S. Federal Reserve have already starting easing policy to safeguard their economies. Poland's central bank governor said on Wednesday he expected stable interest rates until his term ends in 2022 as the bank's policy council left borrowing costs unchanged.

CEE SNAPSH ATMARKET OT 1054S CET

CURREN CIES

Latest Previou Daily Change

s

bid close change in 2019EURCZK= Czech <EURCZ 25.543 25.5210 -0.09% +0.64%crown K=> 0EURHUF= Hungary <EURHU 333.60 332.835 -0.23% -3.75%forint F=> 00 0EURPLN= Polish <EURPL 4.2628 4.2590 -0.09% +0.63%zloty N=>EURRON= Romania <EURRO 4.7610 4.7607 -0.01% -2.25%n leu N=>EURHRK= Croatia <EURHR 7.4295 7.4283 -0.02% -0.26%n kuna K=>EURRSD= Serbian <EURRS 117.44 117.410 -0.03% +0.73%dinar D=> 00 0Note: calculated 1800daily from CET

change

Latest Previou Daily Change

s

close change in 2019.PX Prague 1077.3 1081.05 -0.35% +9.20%2 00.BUX Budapes 43186. 43598.1 -0.94% +10.34%t 40 9.WIG20 Warsaw <.WIG2 2256.1 2272.17 -0.70% -0.90%0> 6.BETI Buchare <.BETI 9692.0 9680.24 +0.12 +31.26%st > 0 %.SBITOP Ljublja <.SBIT 863.13 866.98 -0.44% +7.32%na OP>.CRBEX Zagreb <.CRBE 1980.3 1975.07 +0.26 +13.24%X> 0 %.BELEX15 Belgrad <.BELE 749.60 752.63 -0.40% -1.59%e X15>.SOFIX Sofia <.SOFI 558.64 558.87 -0.04% -6.03%

X> BONDS

Yield Yield Spread Daily(bid) change vs change in

Bund

Czech spread

Republi c

CZ2YTRR <CZ2YT 1.3230 0.0430 +194b +5bps2-year =RR> psCZ5YT=RR <CZ5YT 1.2550 0.0790 +180b +9bps5-year =RR> psCZ10YT=R <CZ10Y 1.6070 0.0700 +186b +8bpsR 10-year T=RR> ps

Poland

PL2YT=RR <PL2YT 1.4130 -0.0030 +203b +0bps2-year =RR> psPL5YT=RR <PL5YT 1.8570 0.0080 +240b +2bps5-year =RR> psPL10YT=R <PL10Y 2.1680 0.0360 +243b +5bpsR 10-year T=RR psFORWAR RATE AGREEMED NT3x6 6x9 9x12 3M interbankCzech <CZKFR 2.29 2.31 2.31 2.18Rep A><PRI

BOR=>

Hungary <HUFFR 0.27 0.31 0.36 0.19

A><BUB OR=>

Poland <PLNFR 1.72 1.71 1.71 1.71

A<WIB OR=>

Note: are for askFRA prices

quotes

(Reporting by Krisztina Than and additional reporting by Robert Muller in Prague ; Editing by)