Crown seen leading gains on rate hikes strong regional growth

Reuters

By Sandor Peto

BUDAPEST, Sept 7 (Reuters) - The Czech crown will lead currency gains in Central Europe in the next 12 months as the Czech central bank raises interest rates, a Reuters poll showed on Thursday.

The crown has gained about 3.5 percent against the euro since April when the Czech central bank (CNB) abandoned a cap on the currency's value that had kept it at 27 to the euro or weaker for years.

The size of the gains disappointed some investors, and it has also proved difficult to take profits by closing positions in the over-sold crown without causing a sharp weakening.

Earlier this week Dutch bank ING, which last year dubbed buying the crown "the trade of 2017", ended its recommendation. Nordea put the crown on a list of the most risky emerging-market currencies that it watches.

But in the Sept 4-6 Reuters poll of 38 strategists, analysts projected the crown would outperform Central Europe's other main units. Their median forecast was for the crown to gain 2.5 percent in the next 12 months from 26.113, the level where it closed last month, to 25.475.

That would be only slightly stronger than their forecast in early August, before the CNB delivered the European Union's first interest rate increase since 2012 to fight inflation.

Further monetary tightening and robust Czech growth are expected to fuel the crown's gains. But the stronger it is, the less the CNB will need to raise rates, since a stronger currency reduces inflation by making imported goods cheaper.

Commerzbank, the most optimistic on the crown among the forecasters, projecting 24.5 in a year's time, said the strengthening against the euro could be slow in the short term.

"In the near-term, we do not expect a sustained decline of EUR-CZK simply because of the sizeable outstanding short positions, which would look to book profit and exit with each round of CZK appreciation," it said in a note.

According to median forecasts in the poll, the Polish zloty is expected to firm 2.2 percent relative to its end-August levels in the next 12 months to 4.1584 and the leu 2.1 percent to 4.5.

The forint is seen steady at 305.5, while the dinar is expected to weaken 3 percent to 122.9.

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