CEE MARKETS 2-Forint slides as central bank tightening is one-off

    * Forint underperforms as c.bank adopts cautious approach
    * NBH increased o/n deposit rate, announced liquidity cut
    * Hungarian bonds tread water after rally, IRS tad lower

    By Sandor Peto and Marton Dunai
    BUDAPEST, March 26 (Reuters) - The forint eased close to a
percent versus the euro after the Hungarian central bank (NBH)
said the move to tighten monetary conditions in its meeting on
Tuesday was a one-off, and will be followed by new steps only if
inflation trends justify it.
    Hungarian government bond and swap yields and forward rate
agreements fell, reflecting fading expectations for further
interest rate increases.
    The NBH has been regarded as one of the most dovish central
banks this decade, but started to gradually shift towards more
hawkish rhetoric last year.
    Its main interest rate is still at a record low and real
interest rates in Hungarian markets are among the lowest in the
world, pushed deep into negative by a rise in inflation.    
    The forint traded at 318.8 versus the euro at 1449 GMT, down
0.8 percent.
    Despite its biggest daily fall in almost three years, the
forint has stayed the region's best-performing
currency this year, with 0.7 percent rise from 2018.
    In the two months following mid-January, it had surged
almost 4 percent to 11-month highs at 312.65 versus the euro.
    It has been boosted by expectations a rise in the NBH's core
inflation measures above 3 percent, the midpoint of its target
range, would prompt monetary tightening.
    Those expectations were knocked back in the past week by
global economic growth worries, expectations for a Federal
Reserve rate cut and a delay in euro zone monetary tightening.
    Other Central European currencies changed little.
    Hungarian government bond yields fell as markets priced out
further rate hikes.
    "The market's assessment is that this rate hike was a
one-off," one Budapest-based fixed income trader said.
    "The market got what it had expected, without a credibility
loss, and the fall of yields reflects that. Decline remains the
trend now," the trader added.
    CIB Bank analyst Sandor Jobbagy said a cut in the liquidity
provided by the bank to markets via its fx swaps, also announced
on Tuesday, was more important than the symbolic interest rate
adjustment, which affected only the overnight rate.
    "This was the first rate hike since December 2011, but the
higher overnight rate is still below recent market rates
therefore the liquidity measures will have a more significant
market effect," Jobbagy wrote in a note to clients.
    "That said the interest rate step was symbolic regarding
normalisation of monetary policy and the beginning of
tightening, therefore the significance of the higher overnight
rate outstrips the unchanged base rate."
            CEE        SNAPSHOT   AT                         
            MARKETS              1549 CET            
                       Latest    Previous  Daily     Change
                       bid       close     change    in 2019
 Czech                  25.7570   25.7510    -0.02%    -0.19%
 Hungary               318.8000  316.1500    -0.83%    +0.72%
 Polish                  4.2924    4.2927    +0.01%    -0.07%
 Romanian                4.7565    4.7556    -0.02%    -2.15%
 Croatian                7.4200    7.4175    -0.03%    -0.13%
 Serbian               117.9000  117.9800    +0.07%    +0.34%
 Note:      calculated from                1800 CET          
                       Latest    Previous  Daily     Change
                                 close     change    in 2019
 Prague                 1076.97  1076.330    +0.06%    +9.16%
 Budapest              41856.84  41605.17    +0.60%    +6.94%
 Warsaw                 2318.22   2312.79    +0.23%    +1.83%
 Bucharest              8049.90   7954.29    +1.20%    +9.02%
 Ljubljana               874.64    871.83    +0.32%    +8.75%
 Zagreb                 1791.58   1793.30    -0.10%    +2.45%
 Belgrade   <.BELEX15    730.05    730.16    -0.02%    -4.15%
 Sofia                   582.48    582.80    -0.05%    -2.02%
                       Yield     Yield     Spread    Daily
                       (bid)     change    vs Bund   change
 Czech                                               spread
   2-year   <CZ2YT=RR    1.8470   -0.0790   +241bps     -9bps
   5-year   <CZ5YT=RR    1.8160    0.0320   +224bps     +3bps
   10-year  <CZ10YT=R    1.8680    0.0170   +189bps     +2bps
   2-year   <PL2YT=RR    1.6760   -0.0810   +223bps     -9bps
   5-year   <PL5YT=RR    2.2000   -0.0010   +263bps     -1bps
   10-year  <PL10YT=R    2.8600    0.0040   +288bps     +0bps
            FORWARD    RATE      AGREEMEN                    
                       3x6       6x9       9x12      3M
 Czech Rep          <      2.12      2.15      2.14      2.02
 Hungary            <      0.34      0.48      0.56      0.13
 Poland             <      1.73      1.73      1.74      1.72
 Note: FRA  are for ask prices                               

 (Reporting by Sandor Peto; Editing by Mark Potter and Ed

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