Czech, Hungary remain cautious despite low inflation

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PRAGUE, 10 June : The Czech crown strengthened on Thursday after a lower-than expected inflation reading, even as rate hike expectations remained unchanged while Central Europe's recovery stokes concerns about rising prices in the region. The Hungarian forint withdrew 0.31% and hung next to a 10 month high, a day after the National Bank of Hungary cemented expectations that it would become the first in Europe to launch a tightening cycle in June. Central Europe is facing the strongest repression of inflation in the EU as economies recover from the COVID 19 pandemic. Poland's central bank, however, kept rates on hold on Wednesday and did not reveal hints at a more hawkish bias, which some economists had expected. This weighed on the Polish zloty, which was 0.1% lower at 4.479 against the euro at 0921 GMT. The adverse consequences of yesterday's events will be zloty weakening and a probable drop of EUR PLN above 4.4740, Bank Millennium said. Markets were also on Thursday with the European Central Bank meeting in its weaker flow seen as a stimulus. The currency was at 25.427 to the crown - down 0.1%. Czech headline inflation slowed in May to a rate of 2.9%, outpacing analysts' expectations. Analysts said that the Czech central bank could still deliver a rate hike in June or August. Erste Group Bank said an June move was more likely. From the data today, it could be possible to suggest a slight weakening of the crown. We do not expect a significant move, however, as markets think that they will probably stay optimistic about the future CNB policy, it said. On June 22, Czech Bank meets and Hungary, a day later, meets rates. Commerzbank said signals on future policy would be important for the forint once Hungary raised rates, and it remained cautious. Even if the Commission already takes back the COVID rate cuts in June, in response to increasing price pressure, it will keep interest rates at comparatively negative levels longer so real interest rates will remain negative, it said. This makes historical HUF appreciation more or less unlikely for the longer term. CEE SIPPHO CORRENC IES Latest Previou Daily Change s bid close change in 2021 EURCZK Czech EURHUF Zagreb - Rada 5 YT 5 year s CZ 4 YT 5 year s PL 10 YTs FRA quotes are for ask prices.

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