Diverging rate paths to prop up zloty, put pressure on forint

The Polish zloty inched higher against the euro on Friday and analysts see it outperforming Hungary's forint in the weeks ahead, supported by relatively tighter monetary policy. Stocks markets in the region rose, underpinned by better-than-expected growth figures for both countries, released on Thursday
The zloty edged up 0.1 percent to 4.185 to the euro while the forint dipped 0.15 percent to 298.34 versus the euro. The Czech crown and the Romanian leu were flat. A robust defence of monetary stimulus from Janet Yellen, who is set to take the helm of the US Federal Reserve, buoyed sentiment in Central Europe, as in other markets world-wide.
"Janet Yellen has supported emerging markets with her comments," said Wojciech Wosko, head of trading at DM BZ WBK brokerage. Poland's broad stock market index rose 1.4 percent, leading gains in the region. The index is up 12 percent this year. "The economic growth figures (in Poland) and results of companies show that further revival is coming," said Wosko.
"We don't have negative result surprises in large companies, but the recovery is much more visible in the results of small and medium companies." Barclays argues that Poland's policymakers have entered a wait-and-see mode, while their Hungarian counterparts will likely use any dip in inflation to deliver more easing.
Poland's central bank has pledged to keep rates steady until at least the end of June next year, and markets have priced in that rate hikes will then follow. Lower-than-expected Polish inflation in October is seen by analysts as insufficient to undermine the resolve of Polish authorities to keep policy steady. The unexpected rate cut in the euro zone in November increased the premium investors get from investing in the zloty, probably increasing its appreciation potential.
"We like the zloty in the region, and we think it will outperform Hungary's forint (and) the Czech crown," said Guillaume Tresca, a currency strategist at Credit Agricole. Markets currently price in that Hungary's 3-month lending rate will fall 22 basis points over the next three months. Poland's equivalent is seen rising 3 basis points. To further boost the economy, Hungary's central bank plans to channel $12.5 billion via commercial banks' loans to small businesses. This amounts to roughly 9 percent of Hungary's annual output.