BUDAPEST: The Czech crown hit a fresh five-year high against the euro on Monday on mounting expectations that the Czech central bank (CNB) would raise interest rates again this week after delivering two hikes last year.
The bank was the first in Central Europe to start tightening policy in August 2017 to stem inflation pressures.
The CNB is widely expected to raise its main repo rate by 25 basis points to 0.75 percent on Thursday to fight inflation as the Czech economy powers ahead.
On Monday the crown hit a 5-year high at 25.281 against the euro, to trade at 25.30 at 0942 GMT, up 0.13 percent. Dealers said it could inch further up in the coming day as the rate meeting approaches.
Central bankers in recent comments have suggested at least two rate hikes could come in 2018 as inflation stays above target.
A dealer said the 25.200 per euro area will likely limit gains after the crown firmed in the past few weeks.
CSOB analysts said the gains seen were not enough to deter the central bank from continuing with its policy tightening.
"So far, in our opinion, the gains are not enough to close the doors on the central bank lifting rates this Thursday," CSOB said. "Before the meeting (on Thursday) we are expecting continuing cautious gains... We see stronger technical barriers at 25.15 and of course 25.00."
Markets shrugged off the Czech run-off presidential election over the weekend, which landed a second term for incumbent Milos Zeman.
Hungary's central bank, the most dovish in the emerging region of the European Union, will also decide on rates on Tuesday.
It is expected to keep its base rate on hold at a record low 0.9 percent on Tuesday, and also over the next two years according to a poll of analysts last week. The bank is also expected to keep its overnight deposit rate on hold at -0.15 percent at its meeting.
The bank has been loosening policy via unconventional tools, most recently using a new interest rate swap provided for commercial banks in an effort to bring longer-term government bond yields lower.
"The lack of more pronounced inflationary pressures and the ongoing IRS auctions where the NBH is a fixed-rate receiver suggests that the NBH is unlikely to tighten before the ECB begins to normalise deposit rates," Citibank said in a note.
The forint was 0.1 percent higher versus the euro on Monday, trading at 309.40 at 0942 GMT.
The Polish zloty underperformed slightly, easing 0.1 percent in what traders described was a natural correction after recent gains.
"After such strong move some correction should be expected. However, zloty is still strong," said BZWK dealer, Marcin Zawi?lak.
The market is waiting for Polish GDP data due on Tuesday and in case the figures are strong, the zloty might appreciate further, dealers said.
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