Central European FX could begin slow rebound after virus hit: Reuters poll

By Miroslava Krufova and Jason Hovet

PRAGUE (Reuters) – Central Europe’s currencies could be over the worst of their pounding as a result of the global coronavirus pandemic, as Hungary’s forint is seen recovering from record lows and the Czech crown gradually firming in the next year, a Reuters poll showed on Friday.

The poll is the first since the pandemic worsened and since investors’ flight to safety pushed central Europe currencies into losses of 6-8% in March.

In the poll, only Romania’s leu and Serbia’s dinar – which have avoided sharp falls – were expected to depreciate over the next year. The forint, crown and Polish zloty should return back to an appreciation path, just on a weaker course.

The forint, already around record lows before the outbreak, was seen regaining 7% from Wednesday’s closing levels to 340 to the euro over the next 12 months – weaker than the 12-month median forecast of 335 a month ago.

After hitting an all-time low of 369.54 on Wednesday the forint bounced back after the central bank announced a new one-week deposit tender available to banks at its 0.9% base rate, which analysts called an implicit rate hike.

The bank said the move could reduce commercial banks’ stock of overnight deposits and manage liquidity in the market better.

“It is very hard to predict what is going to happen to the forint’s exchange rate once the pandemic is over and the economy starts to revive,” Gergely Suppan, senior economist at Magyar Takarek, said. “The new deposit tender… somewhat stabilized the forint.”

“But it is hard to predict its long-term effect,” he added.

Hungary has long had the loosest policy in the region although the other central banks are shifting heavily into easing mode to cushion the blow from the virus.

Government measures to contain the spread have limited daily life limited to essential shopping and going to work. Factories – including major car plants – have idled, shocking the region’s economies and putting them on course for declines in 2020.

The Czech central bank cut its main rate by 125 basis points, to 1.00%, in March. The bank has said it was ready to defend excessive crown moves. It holds foreign reserves equal to 60% of gross domestic product.

The poll, though, sees the crown firming 7.8% to 25.50 to the euro – where it stood before the outbreak.

Similarly, the Polish zloty was seen rising again over the next 12 months, with the median forecast expecting a 5.8% gain to 4.35 to the euro, close to where it started March.

Romania’s leu was seen depreciating 1.7% as the government fights to contain a swelling budget deficit – which already had investors concerned before the outbreak.

“The leu has limited space to rally after the virus-related market stress fades as old structural problems remain relevant,” Jakub Kratky, from Generali Investments CEE, said.

(Reporting by Jason Hovet and Mirka Krufova in Prague and Anita Komuves in Budapest; Editing by Alexandra Hudson)