Forint rally seen sputtering, crown has room to run

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PRAGUE — The Hungarian forint, the biggest gainer among central European currencies so far in 2021, is likely to fall in coming months and reverse a rally fueled by rate hike expectations, while the Czech crown still has room to gain, a Reuters poll showed on Friday.

Central banks in Hungary and the Czech Republic have both flagged the chance of higher rates as early as this month after more than a year of loose policy enacted to cushion the fallout from the COVID-19 pandemic.

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Slowing infection rates and rising numbers of vaccinations in Central Europe are boosting economic recovery and inflation rates are among the highest in the European Union.

The forint has rallied 2.6% since May 17, when a central bank official first raised the possibility of a rate hike this year. Overall, the forint has gained 4.9% so far in 2021 to its highest since August last year.

However, a Reuters poll saw a reversal soon and the forint easing 1.2% from Wednesday’s close to 350 to the euro in 12 months’ time.

“Forint gains won’t be permanent … as a lot of hikes have already been priced in,” ING said. “The current account should be in modest deficit and there is a question as to whether the (central bank) is willing to tolerate an overly strong HUF.”

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The June poll was the first since the start of 2020 that forecast a weaker forint weaker in a year’s time.

The crown, however, likely still has room to add to a 3.2% rise so far in 2021. The median forecast in the poll saw the crown rising to 25.20 to the euro in 12 months, for a further 1.0% gain from Wednesday’s closing level.

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Analysts expect the Czech central bank to be more aggressive than the Hungarian central bank when it eventually starts its tightening cycle.

Some central bankers have said a Czech rate hike could come in June or August, with the latter date corresponding with new staff economic forecasts.

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In Poland, central Europe’s biggest economy, the zloty has trailed its peers this year, firming 2.3% so far. Some analysts say this offers a good entry point, before it catches up with gains in the crown and forint.

The poll forecast an 0.8% rise over the next year to 4.42 to the euro, a stronger 12-month forecast than in a May poll.

The Romanian leu, meanwhile, was forecast to ease 0.9% to 4.965 to the euro, with slow budget consolidation ahead and expansionary monetary policy still in place.

(For other stories from the June Reuters foreign exchange poll:)

(Reporting by Jason Hovet and Miroslava Krufova in Prague; Editing by Kirsten Donovan)

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