Zloty set to pace FX gains

The zloty has further space to climb, even after a rally. As chances grow that Poland’s central bank will begin lifting interest rates sooner rather than later, this was reported by the media. The Polish currency is lagged peers in central Europe in 2021. Meanwhile, the Hungarian forint and Czech crown are leading. This is because their respective central banks have started tightening cycles, even amid a post-pandemic economic recovery.

Poland’s central bank has resisted turning too quickly to interest rate rises. The zloty jumped 1.2%, and then after the inflation data came out, its biggest two-day rise happened since April. The zloty is to gain another 1.8% over the next 12 months, by reaching 4.425 to the euro. But with risks around issues like the treatment of foreign currency loans, or political battles between Warsaw and the European Union, the zloty’s ride is unlikely to be smooth. Malgorzata Krzywicka, an analyst with Erste Group Bank, said that the zloty would still underperform peers. This is expected to happen until the Polish central bank launches rate hikes.

The forint has been central Europe’s top gainer in 2021. It is forecasted to continue to strengthen. The crown was expected to gain 1.0% to 25.10 per euro in 12 months’ time. Radomir Jac, chief economist for Generali Investments CEE said that the positive interest rate differential against the euro should support both the crown and forint currencies in the coming months. But he shared the view that the Hungarian central bank will moderate the pace and frequency of interest rate hike. This is likely to lead to a slower pace of strengthening of the forint, when compared to the appreciation seen in summer and compared to the crown and zloty.