Forint, zloty decline amid mixed signals about growth

BUDAPEST: Central European currencies diverged on Friday, with the forint and zloty falling while the crown and the leu rose, amid mixed signals on the region's economic growth outlook.

Hungary's industrial output and Czech retail sales grew faster than expected in February, underpinning expectations that the region's economies continue to expand robustly.

But Bulgaria cut its growth forecast for 2019, the Slovenian central bank projected a slowdown in the first quarter and the World Bank said Poland's growth could slow to 4 percent this year.

While domestic consumption remains a strong driver of growth in the region, investors have looked with growing concern at weak data from the euro zone, Central Europe's main export

market, in recent weeks.

Hungary's central bank even dropped its hawkish bias last week, sending the forint into a fall, saying that incoming economic data would drive its policy moves.

February data confirmed that industrial output remains healthy, analysts said.

But the forint is still driven by positioning rather than by economic data, one Budapest-based dealer said.

The forint continued to dance around the psychological level of 320 against the euro, and the jury is out whether it will again head towards multi-month lows beyond 322 or resistance levels around 318, market participants said.

While the zloty also eased 0.1 percent, the crown and the leu touched two-week highs, posting minor gains.

The Czech central bank said in minutes from its March 18 meeting that the prevailing view of its rate setters was of there being no need to rush any further interest rates hikes, following interest .

But the consensus was that there was still room to increase rates, while the uncertainty surrounding the crown exchange rate remained high.

A firmer crown would tighten monetary conditions, leading to less need to increase interest rates.

According to a Reuters poll of analysts, the only currency in the regions that is expected to post meaningful gains over the next year is the crown. It is seen firming about 2 percent versus the euro.

In Bucharest, the central bank said at its meeting on Tuesday that it would act to tighten money market liquidity while inflation remained above target.

Analysts in a Reuters poll projected 3.7 percent annual inflation for December, above the bank's 1.5-3.5 percent target range.

Tighter liquidity helps the leu which the bank keeps in a quasi managed float.