Forint hits five-week high, rate setter's comments buoy crown

BUDAPEST: The forint approached 10-month highs on Tuesday on expectations the Hungarian central bank will end seven years of loose policy at its meeting on March 26.

The forint reached five-week highs at 315.4 versus the euro, up a quarter of a percent.

The Czech crown gained 0.1 percent to 25.61 by 1003 GMT, after rate setter Tomas Holub said the Czech central bank may raise interest rates once or twice this year. The bank raised rates five times last year, then held off at its meetings in December and February.

Interest rates are still at record lows in Hungary and Poland, but expectations are growing that the Hungarian central bank will start to tighten liquidity at its upcoming meeting.

"Comments from (rate setter Gyula) Pleschinger seemed to have underpinned that, and this expectation is behind the forint's strength, while turnover remains low," one Budapest-based dealer said.

Pleschinger said on Monday the bank's key inflation gauge reaching 3 percent can be a serious signal to start normalising policy, but it also needed to take a global slowdown and low imported inflation into account.

Hungarian retail sales released on Tuesday showed a pick-up in annual growth to 5.4 percent in January. The growth, fuelled by rising wages across Central Europe, may slow to about 4 percent this year from 6.6 percent in 2018 as inflation rises, ING analyst Peter Virovacz said in a note.

But the expansion of demand may turn towards services this year from food last year, he said. Services is a key constituent of core inflation closely watched by the central bank.

Elsewhere in the region, the Polish central bank is expected to keep rates on hold on Wednesday as inflation remains low there. The zloty was steady, stuck to the weaker side of the 4.3 psychological line against the euro.

The leu gave up 0.1 percent after Romanian assets gained on Monday, following an unusual decision by Standard & Poor's not to deliver a rating outlook, which raised hopes for changes in a widely criticised bank tax.

Romanian stocks, however, extended their gains. Bucharest's main stock index, rose 0.6 percent, approaching their highest in more than two months.

Budapest's index rose half a percent, with OTP Bank -- which last week reported record-high profits for 2018 -- hovering around record highs. Oil group MOL shares rose 0.7 percent.