Forint Expected to Decline from Two-Year High Amid CEE Currency Trends

Forint and Central European Currency Trends

By Jason Hovet

Economic Factors Influencing the Forint

PRAGUE, Feb 4 (Reuters) - The forint is likely to fall from two-year highs against the euro in the coming months, although the Hungarian currency and others in central Europe should still stay close to recent peaks, a Reuters poll forecast on Wednesday.

Performance of Other CEE Currencies

Central European currencies have mostly been on a hot streak since last year, touching fresh highs since December due to tight monetary policy or economic recovery, or both. 

Czech Crown Outlook

But analysts in the poll saw little space for more gains.

Polish Zloty Stability

In the poll taken between January 30 and February 4, Hungary's forint was forecast to fall 1.0% from Tuesday's close to 385.00 to the euro in six months' time.

Romanian Leu Forecast

The possibility of renewed interest rate cuts could start to weigh, and an upcoming parliamentary election - in which challengers have a good chance of ending long-time Prime Minister Viktor Orban's rule - will add some volatility, analysts said.

A lagging economy, partly due to European funds held up by Brussels disputes, is also working against the forint, said Commerzbank, which provided a more pessimistic-than-consensus forecast for the forint to fall towards 400 per euro.

"This growth shortfall not only directly dampens the forint’s prospects, it doubly dampens it by making it more likely that the central bank will face political pressure to lower interest rates," the bank said.

ECONOMIC PERFORMANCE HELPING ZLOTY, CROWN

In contrast, the poll saw economic performance providing support to the Czech crown and Polish zloty. 

The crown was forecast to rebound slightly from recent falls and trade 0.6% up in six months, at 24.20 per euro. The crown has eased recently with global uncertainty and rising chances the Czech central bank might cut rates again after a long break.

In December, the crown had hit a more than two-year peak of 24.10 to the euro. Analysts at SEB said it could firm past that level by the end of the year due to a favourable trade balance.

Danske Bank said Polish growth outperformance versus the euro zone, and a favourable interest rate gap - despite the central bank easing policy - would help the zloty.

The median forecast in the poll saw the Polish currency holding steady in the first half of the year and trading around 4.22 per euro in six months, up a tad from current levels. 

In Romania, the leu was also set to retreat, with the poll putting it at 5.125 per euro, down 0.6%. The currency has long faced pressure from a state budget deficit that is the highest in the EU.

A new government began work last year to cut the fiscal gap.

"Better than expected budget execution achieved last year is encouraging, although Romania is not out of the wood yet with further consolidation and elevated debt refinancing ahead," said Jakub Kratky, an analyst at Generali Investments CEE. 

"That said, the leu could lose some ground as the central bank could soon start to think about rate cuts."

(Other stories from the Reuters February foreign exchange polls)

(Reporting by Jason Hovet; Additional polling by Indradip Ghosh and Nushaiba Iqbal; Editing by Alex Richardson)