The crown is expected to strengthen by 2 percent versus the euro in the coming year if the Czech central bank (CNB) continues to increase interest rates to fight inflation, according to a Reuters poll of analysts.
That is the only meaningful gain projected for a Central European currency in the April 1-3 poll of 41 analysts.
The leu could shed almost 1 percent relative to levels at Thursday noon, to 4.8 versus the euro, depressed by the unpredictability of Romania’s fiscal and tax policy and a widening current account deficit.
Softer rhetoric from the Federal Reserve and the European Central Bank has reduced pressure on the region’s monetary authorities in recent weeks to tighten their own policy.
The outlook hinges on whether recent fears of economic slowdown in the world and the euro zone, mainly Germany, ease, analysts said.
Investors will also look closely at economic data in the Czech Republic and Hungary, where annual inflation has exceeded the midpoint of inflation target ranges.
The poll predicted the crown would firm to 25.2 versus the euro in the next year, a 2 percent rise from mid-Thursday levels.
Morgan Stanley economist Pasquale Diana said a weaker economic outlook in Czech trading partners and a change in the CNB’s fx forecasting methods mixed greater uncertainty into rate forecasts.
“(But) our own forecast shows two hikes this year,” he said in a note.
Like elsewhere in Central Europe, robust growth in wages has driven up inflation in Poland, despite signs of some slowdown in robust economic growth across the region.
But running at 1.7 percent in March, Polish inflation stayed near the bottom of the central bank’s (NBP) 1.5-3.5 percent target range.
Some Polish rate setters are worried about the inflationary impacts of fiscal stimulus by the government, which faces national elections late this year.
But NBP governor Adam Glapinski reiterated on Wednesday that the bank’s 1.5 percent benchmark rate was unlikely to change for years.
The median forecast in the poll predicted a 0.2 percent firming in the zloty to 4.285 versus the euro over the next 12 months, weaker than the 4.255 projected a month ago.
Hungary’s central bank raised its overnight deposit rate by 10 basis points to -0.05 percent, but kept its base rate on hold at 0.9 percent and dropped its hawkish bias last week, sending the forint into a plunge.
The currency stabilized around the 320 line versus the euro this week, and the poll sees it staying at that level over the next year, compared with 317.5 predicted on the 12-month horizon a month ago.
“These are point forecasts, and there may be significant deviations in the exchange rate,” said Erste Group analyst Orsolya Nyeste, adding that changes in the inflation outlook or the guidance of major central banks may cause swings.
ING senior economist Peter Virovacz said the forint could weaken to 330 against the euro by the middle of 2019 after the NBH’s “dovish hike” and “mixed communication” as core inflation could pick up to 3.9 percent by the summer.
Radomir Jac, chief economist of Generali Investments, said solid fundamentals, accompanied by current account surpluses or small deficits in the region, could strengthen the crown, the forint and the zloty.
“Once the external environment becomes more stable, then both the domestic interest rates and fundamental story of the national economies will lead the regional currencies towards some gains,” he said.