Forint, Koruna and Zloty: Tailwind From the German Economy

Consensus Forecasts

Carolin Hecht of Commerzbank evaluates the performance of three major eastern European currencies (the Czech koruna, the Polish zloty and the Hungarian forint) over the next 12 to 18 months. She believes all three currencies are likely to suffer as a result of their central banks’ expansionary monetary policies, but as Germany recovers, the economies of the Czech Republic, Poland and Hungary should also pick up. While stronger growth in Poland and the Czech Republic will likely result in higher interest rates in 2014 and help their currencies make substantial gains, the increasing politicisation of the Hungarian central bank could weigh on the forint in the next few months. Lower risk premiums and a reduction in exchange rate volatility make Eastern European currencies attractive for carry trades activity, but for the forint to benefit significantly, the central bank will need to reduce monetary uncertainty. Carolin Hecht believes all three countries will still eventually join EMU, with the prospect of entry to the euro pointing to a further appreciation of their currencies.

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