Diverging central bank policies boost crown and zloty, hit forint

22 Nov, 2017

The crown traded at 25.476 at 0944 GMT, up 0.2 percent and piercing the 25.5 resistance level, on hopes for another rate hike after two raises since August.

Central banks in the European Union's eastern wing are at a crossroads, drawing different conclusions from the past months' robust economic figures across the region.

The differences were highlighted by Tuesday's announcement from the Hungarian central bank (NBH) that it would launch new interest rate swap tools and a mortgage bond-buying programme to push long-term market rates down and boost fixed-rate mortgage lending.

The measures activated the region's fashionable cross-trade, forint deals against the zloty, which offers higher interest rates.

The zloty hit a six-month high against the forint late on Tuesday. It set a four-month high against the euro early on Wednesday.

At 0944 GMT both currencies were a tad weaker against the euro from their last close, the zloty at 4.218 and the forint at 313.35.

The zloty/forint trade could continue in the rest of 2017 and may help the Polish unit pierce 4.2, some market participants said.

Data from Hungary showing 13.6 percent annual growth in gross wages in September is unlikely to change the NBH's stance, while Poland's recent strong industrial output, wage and retail sales data have fuelled inflation concerns, analysts said.

"The divergence between Polish and Hungarian monetary policies is growing," said Marcin Sulewski, BZ WBK economist, referring to expectations for monetary tightening in Poland next year.

"Investors wanted to keep their exposure to our region, so they changed forints for zlotys," he said.

Still, one Budapest-based trader said he believes the forint could strengthen to 312 to the euro given the strength of the economy, as monetary easing steps have been factored in.

Elsewhere, the Romanian leu traded near record lows against the euro amid concerns inflation could surge in the region's fastest-growing economy, and due to political risks.

The leu, easing to 4.6519 to the euro, may be approaching levels that may worry the central bank, analysts at ING Bank in Bucharest said.

Late on Tuesday, prosecutors froze the personal assets of ruling Social Democrat party leader Liviu Dragnea.

The Czech crown shrugged off a police request to parliament to lift the immunity of prospective prime minister Andrej Babis.

Copyright Reuters, 2017
 

 

Read Comments