The prospect of tighter monetary policy in the euro zone could help the forint and the zloty rise next year towards the level they reached at the end of 2017 and send the Czech crown beyond it, according to a Sept. 3-5 Reuters poll of 35 analysts. A rally by the dollar, which caused a sell-off in emerging markets, has helped weaken the forint by 5.2 percent against the euro this year and the zloty by 3.6 percent.
Relatively low central bank interest rates - 0.9 percent in Hungary and 1.5 percent in Poland - have made it easier for their currencies to weaken. But the Czech central bank has raised rates five times since August 2017, to 1.25 percent now, and crown continues to weaken. It has fallen almost 1 percent so far this year.
According to the median forecasts in the poll, the forint is likely to gain 2.9 percent in the next 12 months relative to Wednesday's close, to 319 against the euro, and the zloty by 2.3 percent to 4.235. The crown could strengthen by 2.6 percent to 25.1. Analysts said spillover impacts from jitters in other emerging markets, including Turkey, could still carry risks in the next months, but may have been largely priced in.
With the European Central Bank likely to end its monetary stimulus policy this year, the dollar could lose some of its relative shine. That could support a gradual recovery of Central European currencies, Equilor analyst Noemi Holecz said. "Next year, the NBH (Hungarian central bank) could also start to talk about (upcoming) monetary tightening and that can help the forint," she said.
Holecz and Peter Virovacz, an ING analyst in Budapest, said when the ECB starts monetary tightening will be a key influence on the NBH. "If the ECB delays its first rate hike, the NBH will not hurry either, and in that case the forint could stay weaker," Virovacz said.
Polish inflation could pick up by next year and fuel expectations that the Polish central bank will also start to raise its record-low interest rates, said Krystian Jaworski, Credit Agricole analyst in Warsaw. In the Czech Republic, the crown should be strengthened beyond 25 to the euro by strong growth, a balanced economy, a yield advantage over the euro zone and low political risks, Ceska Sporitelna analyst Jiri Polansky said.
According to the poll, the crown is likely to gain 1.8 percent against the euro in the next six months, twice as much as this year's loss, and extend those gains later. Romania's leu, meanwhile, is expected to fall 1 percent in the next 12 months, to 4.685 versus the euro. The leu has already outperformed other regional units this year, Generali Investments CEE chief economist Radomir Jac said.
It has gained about 1 percent against the euro since 2017 as the Romanian central bank started to raise its interests rates this year to fight the region's highest annual inflation, which reached 5.4 percent by the middle of 2018. The poll also projected a minor, 0.6 percent weakening in Serbia's dinar to 118.85 against the euro in the coming year. The country has the region's highest central bank rate at 3 percent.
The bank, which has repeatedly sold the dinar in the market this year to curb its strength, is unlikely to cut rates further at its meeting on Thursday after a pick-up in inflation and economic growth, according to a separate Reuters poll.
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