Growth, central bank hawks seen lifting CEE currencies

Central Europe's strong economic growth could lift most of its currencies in the next 12 months as central banks turn more hawkish, a Reuters poll of 33 analysts showed on Friday. In the October 2-5 survey, economists saw Poland's zloty gaining 3 percent against the euro relative to Wednesday's close, while Hungary's forint will firm up by 1.9 percent, the Czech crown by 1.3 percent and the Romanian leu by 0.7 percent.
On the other hand, Serbia's dinar is expected to shed 3.4 percent. The crown has already firmed 4.6 percent this year and the zloty about 2.5 percent, while the forint and the leu have each eased by almost 1 percent. The forecasts showed the crown as the region's biggest gainer since 2016. In August, the Czech central bank (CNB) became the first in the European Union to lift interest rates and is expected to increase them further.
Those expectations have boosted the crown this week to 25.789, its strongest level since the CNB removed a cap in April which had kept it weaker than 27 per euro for years. The median forecasts see a retreat to around 25.9 in the next few months before a rise to 25.5 by October 2018.
It may even reach 25, UniCredit fx strategist Kiran Kowshik said in a note. "We expect the CNB to hike rates by 25 basis points in November, followed by three hikes in 2018, more aggressive than the CNB's own assumptions," he said. Like the CNB, Romania's central bank has voiced concerns over inflation and could start to lift its main rate next year.
The leu is still seen underperfoming most of its regional peers due to fears of a budget deficit rise and political jitters over corruption. Hungary's central bank, going against the global tide, even loosened monetary screws further last month, knocking down the forint. Gains forecast in the poll would mean a partial rebound to 306 versus the euro by October next year, from around 311.
Both Hungary's and Poland's central bank called a recent rise in inflation temporary. They could start to look at possible rate tightening only next year, analysts said. They projected the strongest one-year rise, 3 percent, for the zloty in the region. But that would follow a weakening for weeks due to flows into the dollar and worries Poland's new judiciary reform proposals could trigger tension with the European Commission. "Assuming EM (emerging markets) sentiment stabilizes and EUR-PLN reaches overbought levels... the PLN (zloty) could rebound towards the end of October," UniCredit's Kowshik said.