Major CEE currencies set to outperform the euro – CE

Economists at Capital Economics now expect interest rates to rise across Central and Eastern Europe in the coming years. Subsequently, all of their major currencies are set to strengthen against the euro, with the Czech koruna and Polish zloty faring best.

Recent hawkish comments from policymakers in Hungary and Poland led to a reassessment of monetary policy across the region

“We had always expected CEE currencies to be supported somewhat by the global recovery, given their sensitivity to appetite for risk and the global economic cycle. But our new interest rate forecasts mean that we are now more optimistic on the forint and zloty. Now, we expect all three central banks (NBP, MNB and CNB) to hike rates by end-2023, well ahead of the ECB. As such, we now expect all three currencies to appreciate vis-à-vis the euro.”

“We still anticipate a degree of divergence within CEE. Given that the MNB still appears to lack the appetite to hike rates by enough to stymie inflation, we expect the forint to underperform. Our end-2023 forecasts are 340/€ for the forint, 24/€ for the koruna and 4.25/€ for the zloty. From now, this would be equivalent to a ~6% appreciation in the zloty and koruna, and ~2% in the forint.”