CEE currencies seen facing shaky months before gains

The zloty and the forint may face a shaky next few months due to policy risks in Poland and monetary easing in Hungary, a Reuters poll of 44 analysts showed on Thursday. In the next 12 months, however, Central Europe's expanding and stable economies could lift some of the region's currencies. According to the median forecasts in the poll conducted April 1-7, the zloty could ease 0.2 percent from Wednesday's close to 4.28 against the euro by the middle of this year. But it could firm 1.5 percent to 4.20 by March 2017.
"Zloty's potential remains restricted by uncertainties related to domestic economic policy, including the monetary policy outlook," said Radomir Jac, chief economist of Generali Investments CEE. Key risks to the zloty include a proposed bill to convert Swiss franc mortgages at a cost to banks and further credit rating downgrades after Poland was cut by Standard & Poor's in January.
There are also concerns the Polish central bank will follow the surprise rate cut delivered by Hungary in March. Expected further monetary easing in Hungary could weigh on the forint. The median forecasts in the poll see it shedding 0.4 percent in the next three months to 314.05, and to 315.00 by March next year. "It could bottom out between 315-320 by about July, when we expect the central bank to finish its rate cuts," said Andras Balatoni, analyst of ING in Budapest.
"Then it could firm, but weaken again when inflation rebounds to around 2 percent (from about zero) in the first half of next year." The Czech crown was seen staying on the weaker side of the central bank's cap at levels near 27 in the next 12 months. Only three out of 13 analysts projected a firmer rate within that period, which would mean the bank abandons the cap.
The bank (CNB) is committed to use all the tools it has to prevent robust Czech fundamentals boosting the crown, Generali's Jac said. "I think that the CNB is likely to adopt negative deposit interest rate in the second half of 2016." The dinar is seen staying steady at 122.73 versus the euro by the end of this month, which means Serbia's April 24 elections are unlikely to shake it. It is expected, however, to weaken 1.8 percent to 125.00 on the 12-month horizon.