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Economists from Credit Agricole Bank Polska took a closer look at the currencies of the Central and Eastern European countries: Poland, the Czech Republic, Hungary and Romania (hereinafter: Central and Eastern European Countries 4). They pointed out that the trends in this region in terms of economic growth rate were similar at the end of 2023.
They expect that GDP growth in all countries of the region will continue to accelerate moderately in the coming quarters, and the main factor stimulating economic growth will be lower inflation and an increase in the real purchasing power of household income and consumption. They expect deflationary trends to continue, mainly due to rising base effects, as well as easing supply chain disruptions and lower cost pressures.
An additional factor supporting economic growth in 2024 will be the expected recovery in the euro area and global trade and lower base effects from 2023. The factor limiting the size of the recovery in 2024 will be public investment trends. “Taking into account the cycle of absorption of EU funds (seven-year pause between the two fiscal perspectives), the dynamics of aggregate public spending on fixed assets will decrease significantly in 2024. This factor will be partially mitigated by the implementation of projects under the so-called Recovery and Resilience Instrument (equivalent to the Polish KPO),” wrote Credit Agricole experts.
What will affect currency prices in countries of the region?
They added what is described above The macroeconomic outlook will be important from the point of view of decisions taken by central banks and exchange rates in countries in the region.
“An important factor affecting exchange rates in the four Central and Eastern European countries will be trends in balance of payments data. The increased absorption of EU funds this year under the Recovery and Resilience Instrument and Fiscal Perspective 2021-2027 will have an impact on Improve the total current account balance and capital account balance. Positive for the balance of payments By increasing exports“We also expect an improvement in the economic situation in the four main trading partners of the Central and Eastern European countries,” the report says. However, in the case of Hungary, uncertainty about access to the next batch of EU funds will act as an obstacle. A factor that limits the size of the forint's appreciation in the coming quarters.
Information regarding the release of EU funds under the KPO for Poland was received positively by investors, which was reflected in the strengthening of the zloty exchange rate two weeks ago. “This has the effect of lowering the starting point of our forecast for the EUR/PLN exchange rate and lowering its trajectory in the following quarters. Moreover, according to our revised interest rate forecasts (minor interest rate cuts were assumed this year – ed.) “We expect the National Reserve Bank to excel It will become more stringent than we previously assumed. We believe that interest rates will not change this year. We expect the first cuts (totaling 0.5 percentage points) only in the second half of 2025.” – it was written.
See also: A strong zloty does not mean only benefits. This may have negative consequences for the economy
The higher trajectory of interest rates combined with the release of funds under the KPO prompted economists at Credit Agricole to revise the forecast for the zloty exchange rate upwards. They now believe that the appreciation of the zloty will continue in the following quarters, as a result of which the EUR/PLN exchange rate will fall to 4.24 at the end of this year and 4.20 at the end of 2025. On Monday at noon, the value of the euro was 4.32 Polish zloty, and the rate tried Recently it broke the 4.30 barrier.
Economists from Cinkciarz.pl recently wrote that the approaching interest rate cuts by the Federal Reserve and the European Central Bank should encourage exchange rates to extend last year's declines. Their forecast assumes that at the end of the year we will pay around PLN 4.25 to the euro.
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Forint, krone and leu exchange rates
Experts noted that in recent months the Hungarian National Bank (MNB) has continued its monetary policy easing cycle. The base interest rate was reduced by 4 percentage points to 9%. However, real interest rates in Hungary remain relatively high, and according to economists, MNB will reduce them further.
“Taking into account weak external demand and the likely return of overall inflation to the MNB target in 2025, we still see significant scope for further easing of monetary policy in the coming months. Therefore, we believe the policy rate will be as follows: reduced by 1 percentage point One in March, to 8%, and then the pace of monetary policy easing will slow down and in June 2024 the base interest rate will reach 6%. – Mubeen.
See also: Great opportunity for Polish Zloty. It may be the strongest against the euro since the beginning of the pandemic
Economists estimated that in the short term, the MNB's continued easing of policy would be somewhat negative for the Hungarian forint, as a lower interest rate differential between the MNB and the ECB would reduce the attractiveness of assets denominated in the Hungarian forint. Therefore, they expect the EUR/Hungarian Forint exchange rate to reach 371 at the end of June. After that, there will be a slight appreciation of the forint in the range of 368 and 360 against the euro at the end of 2024 and 2025, respectively, economists said. On Monday, the Euro/Hungarian Forint exchange rate fluctuated around 395.
The monetary policy easing cycle has also begun in the Czech Republic. Interest rates were reduced by 0.25 percentage points. in December and 0.5 percentage points in February. As a result, the two-week repo rate is currently 6.25%.
“We believe that at the next meetings of the Czech Central Bank, cuts will continue by 0.5 percentage points due to obvious inflation slowdowns. According to the forecast of the Czech National Bank (CNB) in February, the interest rate will be reduced to around 3% at the end of this year. And 2 50% at the end of 2025. However, the majority of ECB Governing Council members support a smaller scope of monetary policy easing than envisaged in the forecast. As a result, we assume that interest rates will be reduced to 3.75% at the end of 2025. 2024 and 3 percent at the end of 2025 – shown.
The narrowing of the interest rate differential between the Czech Republic and the Eurozone will be a negative factor for the koruna exchange rate. In the following quarters. But due to the improvement in the economic situation in Germany that economists expect, which will contribute to the revival of Czech exports, they expect the value of the Czech koruna to rise against the euro – although moderate – within their forecast horizon. They expect the EUR/CZK exchange rate to reach 25.0 at the end of 2024 and 24.5 at the end of 2025. It currently stands at 25.3.
In the case of Romania, inflation is expected to fall to the range of permissible deviations from the target only at the beginning of 2025, which justifies caution in lowering interest rates. In recent months, the National Bank of Romania (NBR) has repeatedly emphasized continued uncertainty about the macroeconomic outlook and kept interest rates unchanged (7%). Elections scheduled for 2024 (parliamentary, presidential and European) may also have an impact on monetary policy.
“Taking into account the fact that inflation forecasts by the National Budget Agency will be within the permissible range of deviations from the inflation target (2.5±1%) only in the fourth quarter of 2025, we believe that the cycle of easing of monetary policy in Romania” will begin in the quarter. The second of this year, prices will be reduced by a total of one percentage point throughout the year. “Given the central bank’s currency interventions, we believe the euro/rone exchange rate will remain relatively stable around 4.96-4.97 until the end of 2025,” wrote economists at Credit Agricole. On Monday, one euro costs 4.97 Romanian leu.
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