By 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 EURHUF= was down 0.3% versus the euro, while the Czech crown EURCZK= and the Polish zloty EURPLN= 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.
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(Reporting by Krisztina Than and additional reporting by Robert Muller in Prague ; Editing by)
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