March 9, 2018 / 2:12 PM / 10 months ago

CEE MARKETS-Crown hits 7-week low as CPI fall may mean fewer rate hikes

    * Czech inflation falls more than forecast in February
    * Crown dips, investors wonder if data change rate hike
    * CEE price pressures eased, will rise later -analysts
    * Hungary trade surplus strong, forint firmest since Feb. 20

 (Adds comments from Czech central bank, analyst)
    By Sandor Peto and Petra Vodstrcilova
    BUDAPEST/PRAGUE, March 9 (Reuters) - The crown
dipped to a seven-week low against the euro on Friday as
investors mulled if a retreat in Czech inflation would make the
central bank (CNB) slow its interest rate hikes.
    Czech annual inflation fell to 1.8 percent in February,
below analysts' 2 percent forecast, from 2.2 percent in January.

    The decline added to signs that price pressures in Central
Europe are lower than expected, despite a regionwide surge in
wages and consumption. 
    Poland's central bank lowered its inflation forecasts on
Wednesday and surprised investors with strongly dovish comments.

    The CNB said prices of all consumer price basket items were
below its expectation, and the new figures represented dowwards
risk relative to its forecasts.
    Even before the bank's comments, KBC analysts said the CNB
was likely to hike interest rates slower now.
    "Now we see only one more 25 bps rate hike until the end of
this year (compared to two before)," they said in a note.  
    The crown traded at 25.46 against the euro at 1341
GMT, off the lows which it reached after the figures at 25.483,
but weaker by 0.15 percent from Thursday.  
    Austrian-based Erste Bank, a volatile stock listed
in Prague, shed 1.1 percent, but Komercni Banka shares
rose by 0.5 percent. Higher interest rates open room for banks
to increase their revenues.
    Czech inflation was pushed lower mainly by food and beverage
prices that retreated after a jump in items including eggs and
butter in 2017, Erste analyst Jiri Polansky said in a note,
before the CNB's comments.
    But the underlying economic story has not changed, he said.
    "Tight conditions in the labour market, solid domestic
demand, rise in administered prices and higher food and oil
prices...are the most important pro-inflationary factors."
    A Reuters poll of analysts earlier this week projected that 
the crown could spearhead a firming of the main regional
currencies in the coming year, driven by healthy growth and
continuing monetary tightening.
    Other Czech figures underpinned on Friday that wage growth
remains robust, while the country's January trade surplus was
hardly more than half of analysts' forecasts.
    Hungary's January trade surplus, meanwhile, was higher than
expected. This year's surplus will be only marginally below 8.1
billion euros in 2017 despite robust domestic demand,
Takarekbank analyst Gergely Suppan said in a note.
    The forint was steady at 311.79 versus the euro.
            CEE       SNAPSHOT   AT                         
            MARKETS             1441 CET            
                      Latest    Previous  Daily     Change
                      bid       close     change    in 2018
 Czech      <EURCZK=   25.4600   25.4220    -0.15%    +0.32%
 crown      >                                       
 Hungary    <EURHUF=  311.7900  311.8000    +0.00%    -0.28%
 forint     >                                       
 Polish     <EURPLN=    4.2020    4.2039    +0.05%    -0.61%
 zloty      >                                       
 Romanian   <EURRON=    4.6577    4.6550    -0.06%    +0.47%
 leu        >                                       
 Croatian   <EURHRK=    7.4250    7.4375    +0.17%    +0.07%
 kuna       >                                       
 Serbian    <EURRSD=  117.9400  117.9400    +0.00%    +0.47%
 dinar      >                                       
 Note:      calculated from               1800 CET          
                      Latest    Previous  Daily     Change
                                close     change    in 2018
 Prague                1116.03  1118.170    -0.19%    +3.51%
 Budapest             38444.09  38670.63    -0.59%    -2.37%
 Warsaw                2337.44   2322.09    +0.66%    -5.03%
 Bucharest             8484.71   8471.65    +0.15%    +9.43%
 Ljubljana  <.SBITOP    820.07    816.84    +0.40%    +1.70%
 Zagreb                1857.73   1852.99    +0.26%    +0.81%
 Belgrade   <.BELEX1    741.06    735.21    +0.80%    -2.47%
 Sofia                  675.69    682.94    -1.06%    -0.26%
                      Yield     Yield     Spread    Daily
                      (bid)     change    vs Bund   change
 Czech                                              spread
   2-year   <CZ2YT=R    0.8200    0.0510   +137bps     +5bps
   5-year   <CZ5YT=R    1.2850   -0.0020   +125bps     -2bps
   10-year  <CZ10YT=    1.9330   -0.0070   +128bps     -3bps
   2-year   <PL2YT=R    1.5840    0.0070   +213bps     +0bps
   5-year   <PL5YT=R    2.5010    0.0310   +247bps     +2bps
   10-year  <PL10YT=    3.3020    0.0610   +265bps     +4bps
            FORWARD   RATE      AGREEMEN                    
                      3x6       6x9       9x12      3M
 Czech Rep                0.96      1.06      1.22      0.90
 Hungary                  0.09      0.13      0.20      0.03
 Poland                   1.73      1.75      1.81      1.71
 Note: FRA  are for ask prices                              
0 : 0
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