CEE FX set to weaken as rate cuts come into view

Warsaw, July 6 (BNA): Central European currencies are set to weaken over the next 12 months with the Polish zloty taking the biggest hit, a Reuters poll shows, with inflation higher than the eurozone and interest rate cuts likely.

According to Reuters, the region’s currencies made a strong start to the year, supported by higher interest rates and lower energy prices, which eased pressure on the trade balance.

But with Hungary’s central bank already beginning to ease policy and more interest rate cuts expected in the region this year, analysts expect currencies to drop.

In Poland, where markets believe the cost of credit will decline in the fourth quarter, the zloty is expected to decline by 2.7% compared to Tuesday’s closing of 4.55 per euro.

Marcin Sulewski, an economist at Ippima Securities, said: “I think the market may underestimate the length of the economic slowdown that Central and Eastern European economies will suffer, and we will probably talk about interest rate cuts, so amid high inflation this will affect the currencies of Central and Eastern Europe.” “. .

The National Bank of Hungary (NBH) has already cut its key one-day deposit rate by a total of 200 basis points to 16% to ease the burden on the sluggish economy. Inflation, still the highest in the European Union, has begun to ease.

“Forint has the potential to weaken if we see stronger-than-expected inflation, which could raise bets on stronger NBH facilities,” said Peter Veroufacz, economist at ING.

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The survey predicted the forint to fall 1.3% to 380.0 against the euro. The Romanian leu, which is heavily controlled by the central bank, is expected to decline 1.0% to 5.0 against the euro. Kratke said.

“Although consumer prices in Romania are highly sensitive to the exchange rate, they may soon allow the central bank to allow the leu to depreciate slightly.”

The Czech Crown is expected to weaken the least in the region, declining 0.1% to 23.775.

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