BUDAPEST/ZAGREB: The crown set a 5-week high against the euro on Monday as expectations for further Czech central bank interest rate hikes prevailed despite a drop in annual inflation in November.
Inflation dropped to 2 percent, the central bank's target level, from 2.2 percent in October.
The crown reached its strongest levels since early November at 25.844 versus the euro before retreating to 25.855 by 1004 GMT, still firmer by 0.1 percent from Friday.
Other Central European currencies were steady or a touch easier, while global fears of an economic slowdown pushed regional equities mostly lower, with Warsaw's bluechip index shedding 0.4 percent.
Investors were cautious ahead of Tuesday's vote in which Britain's parliament could reject a deal on the terms of the exit from the European Union.
"Brexit" without set terms would pose some risks to Central European economies and Poland in particular, in part due to their trade links with Britain.
Trade was slow in the crown's market after the inflation figures, one dealer said.
The inflation drop confirms that the CNB could take a pause at its Dec. 20 meeting after four straight rate hikes. But inflation pressure remains strong despite the fall driven by a decline in food and packaged holiday prices, and will require tighter monetary conditions, Erste analysts said in a note.
"If koruna (the crown) starts appreciating again, we expect the CNB to deliver only one additional hike approx. in the middle of the next year," Erste said, adding that three hikes may come if the crown does not strengthen.
Pressure on some of the region's central banks to increase interest rates has eased in the past two months as global crude prices sharply retreated.
"The crude slump has rewritten expectations. People are waiting," one Budapest-based fixed income trader said, adding that Hungary's central bank could keep its rates on hold at its meeting on Dec. 18.
The Croatian central bank, which manages the kuna in tight ranges, even had to sell the unit last week to stem its strengthening driven by European Union fund inflows, tourism revenues and increased lending in the local currency.
Further interventions are likely, Erste said in a separate note. The kuna traded near 5-month highs, at 7.385 against the euro.
Romania is also expected to report on Tuesday a fall in annual inflation, to 3.7 percent in November from 4.3 percent in October, which may provide support to Romanian government bonds, analysts said.
"With liquidity conditions improving, today's October-2020 bond auction should see good demand," ING Bank said in a note.
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