Forint, Hungarian bonds ease ahead of CPI data, auction

BUDAPEST/PRAGUE: The forint hit a 12-week-low against the zloty and Hungarian government bond prices fell on Monday, underperforming Central European peers, amid expectations for a further rise in inflation in Hungary.

The dollar-based MSCI emerging market currency index shed 0.1 percent by 1306 GMT while emerging market shares were subdued after a rally last week.

The forint eased while the zloty, gained 0.1 percent against the euro.

Trading at 321.44 against the euro, the forint approached the lows of 322.63 set last week, after a plunge since the National Bank of Hungary's "dovish rate hike" on March 26.

The bank increased its two-week deposit rate, which is not its main rate, but dropped its guidance for gradual policy tightening, saying policy would be driven by economic data.

Hungary reported a higher than expected trade surplus for February on Monday, but the figures failed to support the forint.

It crossed a key line at 75 against the zloty for the first time since the middle of January.

While Polish inflation runs near the bottom of the central bank's 1.5-3.5 percent target range, Hungary is expected to report a rise to 3.5 percent in March, further above the midpoint of the central bank's 2-4 percent target.

Hungarian government bond yields rose by 6-7 basis points, with the 10-year paper trading at 3.1 percent, while its Polish peer dropped 1 basis point to 2.905 percent.

"The (Hungarian) government debt yield curve is deep below inflation, so I can understand if some people say that they no longer want it," one Budapest-based trader said.

After a sharp decline in yields last month, positioning ahead of Thursday's bond auctions is also driving yields higher, the trader said.

The Czech Republic also released a higher-than-expected trade surplus figure.

The crown tested 3-week highs, trading at 25.61 versus the euro.

Analysts in a Reuters poll last week projected a 2 percent firming of the crown in the next 12 months, the only meaningful currency gain seen in the region.

"The outlook... could potentially improve over the 12 months, should the pace of economic activity in the Eurozone gain greater momentum, with focus on potential measures the ECB could implement to reignite growth," said Piotr Matys, emerging markets forex strategist at Rabobank.

Demand-led inflation pressure should keep the Czech central bank in favour of gradually normalising its accommodative monetary policy, but a trade war between the United States and the EU is a risk, he added.