CEE MARKETS-Forint underperforms on surprise increase in inflation

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.

CEE MARKETS

SNAPSHOT

AT 1054 CET

CURRENCIES

Latest

Change

bid

close

change

in 2019

EURCZK=

Czech crown

EURCZK=

25.5430

25.5210

-0.09%

+0.64%

EURHUF=

Hungary forint

EURHUF=

333.6000

332.8350

-0.23%

-3.75%

EURPLN=

Polish zloty

EURPLN=

4.2628

4.2590

-0.09%

+0.63%

EURRON=

Romanian leu

EURRON=

4.7610

4.7607

-0.01%

-2.25%

EURHRK=

Croatian kuna

EURHRK=

7.4295

7.4283

-0.02%

-0.26%

EURRSD=

Serbian dinar

EURRSD=

117.4400

117.4100

-0.03%

+0.73%

Note: daily change

calculated from

1800 CET

Latest

Change

close

change

in 2019

.PX

Prague

.PX

1077.32

1081.0500

-0.35%

+9.20%

.BUX

Budapest

.BUX

43186.40

43598.19

-0.94%

+10.34%

.WIG20

Warsaw

.WIG20

2256.16

2272.17

-0.70%

-0.90%

.BETI

Bucharest

.BETI

9692.00

9680.24

+0.12%

+31.26%

.SBITOP

Ljubljana

.SBITOP

863.13

866.98 -0.44%

+7.32%

.CRBEX

Zagreb

.CRBEX

1980.30

1975.07

+0.26%

+13.24%

.BELEX15

Belgrade

.BELEX15

749.60

752.63 -0.40%

-1.59%

.SOFIX

Sofia

.SOFIX

558.64

558.87 -0.04%

-6.03%

BONDS

Yield

Spread

Daily

(bid)

change

vs Bund

change in

Czech Republic

spread

CZ2YT=RR

2-year

CZ2YT=RR

1.3230

0.0430

+194bps

+5bps

CZ5YT=RR

5-year

CZ5YT=RR

1.2550

0.0790

+180bps

+9bps

CZ10YT=RR

10-year

CZ10YT=RR

1.6070

0.0700

+186bps

+8bps

Poland

PL2YT=RR

2-year

PL2YT=RR

1.4130

-0.0030

+203bps

+0bps

PL5YT=RR

5-year

PL5YT=RR

1.8570

0.0080

+240bps

+2bps

PL10YT=RR

10-year

PL10YT=RR

2.1680

0.0360

+243bps

+5bps

FORWARD

RATE

AGREEMENT

3x6

6x9

9x12

3M interbank

Czech Rep

CZKFRAPRIBOR=

2.29

2.31

2.18

Hungary

HUFFRABUBOR=

0.27

0.31

0.36

0.19

Poland

PLNFRAWIBOR=

1.72

1.71

Note: FRA quotes

are for ask prices

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

((krisztina.than@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Reuters

Reuters, the news and media division of Thomson Reuters, is the world’s largest international multimedia news provider reaching more than one billion people every day. Reuters provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world's media organizations, and directly to consumers at Reuters.com and via Reuters TV.

Learn More