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Analysts expect East Europe currencies to return to gains over next year

posted onOctober 29, 2019

Most CEE currencies are seen returning to gains over the next 12 months, lifted by solid growth, according to a Reuters poll among analysts.

The Polish zloty is expected to gain 0.9% to 4.30 to the euro in a year’s time, the Czech koruna is expected to rise by 1.0% to 25.50 to the euro over the next 12 months, and the Hungarian forint could increase by 1.5% to 328.25 to the euro in the next year.

However the expected gains will be less than previously forecast.

According to the previous survey conducted between August 29 and September 4 among 31 analysts, the Polish zloty was seen firming 1.5% against the euro over the coming year, while the Czech koruna was expected to gain 2% against the euro, while the Hungarian forint was expected to gain nearly 4%. 

“The strengthening in the case of all three currencies is connected with the expectations for easing of monetary policy both in the euro zone and in the U.S.,”  Krystian Jaworski, senior economist at Credit Agricole CIB told Reuters last month.

The forint has lost close to 4% so far in 2019, more than double the declines of the zloty or Romania's leu .

The leu was seen depreciating by 1.6% against the European single currency over the next 12 months, according to the Aug.29-Sept. 4 survey. This equates to a real strengthening of the Romanian currency of over 2%, given the consumer price inflation is expected at 3%-4% over the coming year and the GDP deflator, labour cost, producer prices or any other deflator are likely to be even higher.

The leu’s exchange rate has followed a long path during the three decades of Romania’s transition to a market economy. 

Its evolution from lei 5/US dollar at the unification of the three historical Romanian provinces in 1919, up to lei 15/US dollars under the socialist regime to lei 29,695/US dollars at re-denomination in July 2005 and further to lei 4.25/US dollars (lei 4.73/euro) at the end of July 2019 says it all. 

Historically, the Romanian Leu reached an all time high of 4.38/US dollars in December of 2016 and a record low of 0.26/US dollar in January of 1996, according to Trading Economics.