Crown and forint expected to strengthen as interest rates hike (Reuters poll)
By Miroslava Krufova and Krisztina Than
BUDAPEST (Reuters) – The Czech koruna and the Hungarian forint will extend their gains over the coming year as their central banks hike rates to curb inflation during the post-pandemic economic recovery, a Reuters poll found on Thursday .
Analysts expect the krone to continue to strengthen, reaching 25.04 per euro over the next 12 months, up 1.6% from Wednesday’s levels, according to the poll’s median forecast .
The Czech National Bank is expected to deliver a 25 basis point rate hike to 0.75% later Thursday after a similar increase in June.
The poll predicted the Hungarian forint to rise 1.35% to 350 per euro over the next 12 months, with the central bank pledging each month to “take firm action” to bring inflation “under control” as quickly as possible “.
The bank raised its key base by 30 basis points in June and July to 1.2%. Its next political meeting will take place on August 24.
ING Bank’s Piotr Poplawski said he expects moderate gains in Central and Eastern European currencies in the coming months, with the Polish zloty likely underperforming as interest rates in Poland are lows in the region and comments from the central bank’s Monetary Policy Committee (MPC) suggest that a tightening cycle will not begin until the fourth quarter.
“In short, CZK should be the top performer, given a relatively traditional MPC position, HUF should be in the middle, while PLN should be lagging behind,” he said.
Central European economies are rapidly recovering from the coronavirus pandemic and data from the Purchasing Managers Index (PMI) on Monday showed that manufacturing activity rose sharply in July, even though chain problems were supply hampered production.
The recovery led to a surge in inflation across the region, notably to 5.3% per year in Hungary in June, the highest in nearly a decade.
“As market expectations adjust to the new hawk in the region, we remain short of PLN / HUF as the policy divergence is expected to become more pronounced,” Morgan Stanley said in a note to clients.
“By the time the (Polish central bank) increases by 25 basis points, depending on the market price, the key rate in Hungary should be closer to 2%,” they added.
The Polish central bank has so far maintained an accommodating stance, with Governor Adam Glapinski saying it will not rush to raise rates.
The zloty, which has underperformed its peers so far this year, is expected to rise 2.6% to 4.43 per euro over the next 12 months, in line with previous forecasts.
The Romanian leu is expected to weaken 1.3% to 4.98 per euro.
(Reporting by Miroslava Krufova and Krisztina Than; poll by Sarupya Ganguly, Prerana Bhat and Indradip Ghosh; edited by Kirsten Donovan)