CEE MARKETS-Czech crown hits 18-month high as rate cut outlook eyed

BUDAPEST, Aug 7 (Reuters) - The Czech crown hit an 18-month high on Thursday ahead of a central bank meeting where interest rates are widely expected to remain unchanged, although investors will look for signs of whether the monetary easing cycle is at or near an end.

Central European assets got a boost on hopes of a potential ceasefire in Ukraine after news that Russian President Vladimir Putin and U.S. President Donald Trump could meet as soon as next week.

The crown EURCZK= was up 0.2% at 24.520 per euro by 0825 GMT, off a session high of 24.517 per euro, its strongest level since January 2024.

The Czech currency is trading more than 2.5% stronger than what the central bank's last outlook assumed in its forecasts, something that has helped with policy tightness.

Market pricing shows traders expect the Czech central bank to keep interest rates steady for the rest of the year and into next year, although analysts see chances of another cut toward the end of 2025.

While inflation has stuck in the bank's tolerance band around its 2% target, services price growth has remained stronger than desired. Rate setter Jakub Seidler told Reuters last week the scope for a further cut was limited.

Markets will be watching the bank's new economic outlook, and Dominik Rusinko, an economist at bank CSOB, said the rate trajectory might not change much given an unexpectedly strong crown currency.

"The stronger-than-expected exchange rate is the main dovish argument. But it will not be robust enough - for now - to change the balance in the bank board," he said.

"In addition to rate stability, we also expect hawkish rhetoric from Governor (Ales) Michl at the press conference, which will emphasize the significantly limited scope for lower interest rates in the future."

ING said the rate-cutting cycle was ending, which could help boost the crown, but gains will be slower than seen so far.

Elsewhere, the Hungarian forint EURHUF= firmed 0.2% to 397.35 per euro. The Polish zloty EURPLN= firmed 0.25% to trade at 4.2645 to the euro.

The leu EURRON= held stable, trading at 5.073 per euro, a day before a meeting of Romania's central bank.

Stocks in the region firmed, with Warsaw's benchmark share index .WIG20 and Prague .PX equities adding 0.9% while Prague's stocks .PX added 0.7%.

Budapest's blue-chip index .BUX was 1% higher. Shares of telecom company Magyar Telekom MTEL.BU gained after the company reported 73 billion forints ($215 million) in operating profits for the second quarter.

($1 = 340.0100 forints)

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