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The zloty, buoyed by Poland's steady economic growth, is expected to gain more than 4 percent against the euro in the next 12 months, well outperforming Central European peers. According to an October 5-7 Reuters poll of 30 analysts, the zloty could firm to 4.075 by October next year, 4.1 percent stronger than Tuesday's close .
The Czech crown, the Hungarian forint and the Romanian leu are seen gaining less than 1 percent in that period. The region's steady economic growth around 3-4 percent and sound balance of payment indicators have shielded its currencies against anxiety about the repercussions of slowing economic growth in China.
Fading expectations for US Federal Reserve rate hikes and the possibility of a pick-up in asset buying by the European Central Bank could also help these currencies. In Poland, the region's biggest economy, the Law and Justice (PiS), a less business-friendly party than the ruling Civic Platform, is seen winning elections late this month.
"Although... political uncertainty about the outcome of the elections is currently a factor holding off the appreciation potential, we do not expect this effect to be long-lasting even if PiS wins the election," said Erste's Katarzyna Rzentarzewska. Investors have started to price in a resumption of cuts in the Polish central bank's 1.5 percent benchmark rate due to recent weak global and domestic economic figures.
But the bank's comments after its meeting on Tuesday did not reflect a dovish shift. Rzentarzewska said rates could stay steady this year and next. "However, the risks are obviously toward a weaker zloty as the composition and bias of the new MPC remains a big question mark," she said, referring to a revamp of the central bank's rate-setting panel next year.
Risks to the growth and inflation outlook have also pointed to a weaker zloty, she said. Junk-rated Hungary's 1.35 percent central bank base rate is even lower than Poland's and its loose monetary policy could weaken the forint next year just as the Fed is expected to start to tighten at last, said Erste Bank's Gergely Urmossy.
The diesel emissions scandal at auto maker Volkswagen, which has big plants in Central Europe, may cut Hungary's economic growth by 0.5-1.0 percentage point next year, he added. The scandal may also dent Czech growth but the poll sees the Czech crown firming past the central bank's cap of 27 against the euro, introduced in 2013, next year.
The bank could abandon the intervention regime by August next year, said Jan Vejmelek of Komercni banka. "Higher economic growth in the Czech Republic versus the euro area since 2014 is behind our forecast of stronger crown in combination with a current account surplus," he added. The leu is also seen firming slightly despite worries that government spending could surge around next year's elections. "However, after 2016, depreciation pressure on the leu might increase due to a loss of competitiveness due to higher unit labour costs," said Aron Anca of UniCredit.

Copyright Reuters, 2015

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