Forint hits 12-week-low vs zloty despite trade surplus

BUDAPEST/PRAGUE: The forint hit a 12-week-low against the zloty on Monday against the backdrop of gloomier sentiment towards emerging markets and expectations for a further rise to inflation in Hungary.

The dollar-based MSCI emerging market currency index shed a quarter of a percentage point by 0907 GMT while emerging market shares were subdued after a rally last week.

The forint eased while its main Central European peer, the Polish zloty, gained 0.1 percent against the euro.

Trading at 321.59 against the euro, the forint approached the lows of 322.63 set last week, after a plunge since the National Bank of Hungary's "dovish rate hike" on March 26.

The bank increased its two-week deposit rate, which is not its main rate, but dropped its guidance for gradual policy tightening, saying policy would be driven by economic data.

Hungary reported a higher than expected trade surplus for February on Monday, but the figures failed to support the forint.

It weakened beyond a key psychological line at 75 against the zloty for the first time since the middle of January.

"The Polish central bank (last week) said that they would keep interest rates unchanged ... while there will be no rate increase in Hungary," one Budapest-based dealer said.

While Polish inflation runs near the bottom of the central bank's 1.5-3.5 percent target range, Hungary is expected to report a rise to 3.4 percent in March, further above the midpoint of the central bank's 2-4 percent target.

Hungary's monthly trade figures have become volatile in the past year, with surging consumption boosting imports, while demand for its goods in the euro zone has become more fragile.

After some decline in Hungary's trade surplus this year it could rise again from next year, partly because of new capacities in the automotive industry, and make the economy a net lender by next year, Takarekbank analysts said in a note.

"These trends can lend sustained support to the forint," they said.

The Czech Republic also released a higher than expected February trade surplus figure on Monday and a 1.5 percent annual rise in industrial output.

Foreign demand could rebound in the second half of 2019, while slowing wage growth and more household savings could put a lid on imports, said Komercni Banka analyst Monika Junicke.

Erste analysts said they still expect the Czech central bank to increase interest rates further in August, or in May if the international environment improves.