CEE MARKETS-Forint weakens as Hungary leaves rates unchanged

By Anita Komuves

BUDAPEST, Aug 25 (Reuters) - The Hungarian forint weakened on Tuesday afternoon after the country's central bank left key interest rates unchanged, as expected, and announced that it would increase the amount of its weekly government bond purchases.

Bond yields were unchanged immediately after the announcement, a fixed income trader said in Budapest.

The forint EURHUF= reached a one-month low, trading 0.6% lower against the euro. It could weaken further, brokerage Equilor said in a note.

"The next important resistance level is at 355.85," Equilor said. "The movement could stop there, followed by a smaller or larger negative correction. After that it can weaken towards the 360-365 range."

The central bank said in a statement after the rate decision that it expects the disinflationary effects of the coronavirus pandemic to rein in price growth over its monetary policy horizon.

Markets were closely watching the bank's comments on higher-than-expected inflation and economic recovery as inflation came in at an annual 3.8% in July and GDP dropped by 13.6% year-on-year in the second-quarter.

"If the central bank were to sound more dovish, the downward trend in HUF might continue in the near future," Commerzbank wrote before the decision.

Elsewhere, the zloty EURPLN=and the Czech crown EURCZK=were stable.

"The Czech koruna is currently trading close to our target of EUR/CZK 26.0 for the end of the year," Raiffeisen said.

However, it is "not going to appreciate to the levels we (saw) before the pandemic shock ... The interest rate differential with the euro area declined significantly."

Shares in the region were mixed. Prague's stock market .PX led gains, rising 1.1%. Warsaw's equities .WIG20 fell 0.6%.

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