Central European currencies are expected to tread water or weaken slightly in the months ahead as the euro zone struggles to end its debt crisis, prolonging recession fears at its eastern borders. But the currencies could post gains again within 6-12 months, led by Hungary's volatile forint, according to a Reuters survey of 30 analysts conducted between April 3 and 5.
The region's units have benefited from extra liquidity that was pumped into the system by central banks around the world this year. But their fortunes are closely linked to the prospects of the euro, their reference peg, and analysts now expect investors to take profits. The poll sees the forint firming 2 percent against the euro from Wednesday's close in the next six months to 290, and gaining 3.8 percent in 12 months to 285.
Poland's zloty is expected to give back some of this year's gains over the next six months, but strengthen 2.3 percent on the 12-month horizon to 4.06 versus the euro. The forint has gained about 6.4 percent so far this year, and the zloty about 7.2 percent, after the currencies took a pasting last year when the euro zone crisis escalated.
The forint could get support from an international aid deal expected by most analysts to be agreed around the middle of the year or in the second half, analysts said. Credit talks have been delayed for months by the country's dispute with the European Commission over new laws which Brussels said threatened the independence of the central bank, the judiciary and the data protection watchdog.
The prospect of a deal helped the forint recover from record lows against the euro in the first days of the year. The delay has triggered some uncertainty, but most market participants still believe the country will clinch a deal, thus securing a financial backstop which is expected to serve as a policy anchor after years of measures which confounded investors.
"In the short term the forint can perform about in line with the other currencies in the region, and in the longer term it can slightly outperform them," said Sandor Jobbagy, an analyst at CIB Bank in Budapest. "The assumptions behind this are that the government will forge a deal with the IMF and the EU, and there will be no major further trouble in the euro zone and its peripheries," he said.
The Hungarian central bank has indicated that a credit deal may afford room for cuts in its 7 percent base rate, the highest in the region, to help the economy which is on the brink of recession. Interest rates are at record lows in the Czech Republic and Romania, where currencies have been less volatile than in Hungary and the region's biggest economy, Poland.
The Czech crown, which has gained 3.4 percent against the euro this year, is expected to retreat by just over one percent in the next 3 months to 24.9, but regain all that ground in the next 12 months and firm 1.2 percent to 24.35. The poll sees Romania's leu, which has been held stable since 2010 by an International Monetary Fund credit facility and central bank interventions, firming 0.5 percent against the euro in the next 3 months to 4.35, and 2.2 percent in 12 months to 4.28.
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