© Reuters. FILE PHOTO: Polish zloty coins are seen in this illustration taken in Warsaw, Poland, September 29, 2012. REUTERS/Peter Andrews/File Photo
Written by Jason Hovett and Alan Sharlish
WARSAW/PRAGUE (Reuters) – Central European currencies are expected to weaken over the next 12 months, with higher inflation compared to the euro zone and the prospect of lower interest rates, a Reuters poll showed.
The region’s currencies made a strong start to the year, supported by higher interest rates and lower energy prices that put pressure on trade balances.
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.
It is expected to drop 1.3% to 380.0 per euro, according to the survey. The euro, which is heavily controlled by the central bank, is expected to decline 1.0% to 5.0 against the euro.
“In Romania, the new government has decided to deploy a new tool to reduce the significant price pressures that remain associated with expensive food,” said Jakob Kratky, an analyst at General Investments.
“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.”
Lesser currencies in the region are expected to weaken, dropping 0.1% to 23.775.
(For other stories from the Reuters July FX Poll:)
