Central and eastern Europe currencies seen gaining over year, led by zloty

BUDAPEST Thu Feb 7, 2013 9:54am GMT

BUDAPEST (Reuters) - Poland's zloty is expected to lead Central European currencies higher in the next 12 months on the back of an expected economic recovery in the European Union's emerging markets.

The median forecast in a poll of 30 analysts, conducted on Feb 4-6, sees the zloty gaining 4.8 percent against the euro from Wednesday's close in the next 12 months, to 3.99.

The Hungarian forint could firm 1.4 percent and the Czech crown and the Romanian leu 0.6 percent by early next year, the poll suggested.

Over the next three months, however, the zloty is seen rising and the other three weakening slightly.

Central banks in the region have been cutting their interest rates in the past months to help their economies hit by ailing demand for exports in the neighbouring euro zone and by government efforts to rein in budget deficits.

The region's interest rates are still attractive to investors who can get less than 2 percent yield on U.S. 10-year notes, but 6.5 percent on the corresponding papers in Hungary and about 4 percent in Poland.

Poland has the most robust economy in the region which has only slowed down in the aftermath of the 2008 global crisis, while Hungary and the Czech Republic are struggling with the second recession since the crisis.

Dorota Strauch, a Raiffeisen analyst in Warsaw, said the Polish central bank could finish its rate cut series in the coming months, leading to zloty strengthening.

"Our forecast of gradual appreciation in the second half of the year is based most of all on the recovery in the euro zone which should become visible in the monthly indicators in the second half of the year and should support risk appetite," she said.

The expected 12-month gains of the forint and the crown are much smaller than for the zloty, and the poll even projects that the forint will retreat to 295 against the euro by the end of April from Wednesday's 294.05 close, and the crown to 25.5 from 25.356.

SHADOWS ON FORINT, CROWN

The forint was on a rollercoaster in the past weeks because of media reports that Economy Minister Gyorgy Matolcsy is the top candidate to succeed hawkish central bank governor Andras Simor whose term will end in March.

Investors are concerned that Matolcsy could cause forint falls by trying to pump cheap money into the economy.

The analyst consensus still sees the forint currency firming to 290 in the next 12 months, even though that is a weaker level than 280 projected a month ago.

"I expect a calmer period by April-May," said David Nemeth, ING analyst in Budapest. "The (central) bank will probably not cut rates further in that period, when the new governor builds credibility, and it will resume rate cutting only around June."

The crown surged on Wednesday after central bank Governor Miroslav Singer said that its weakness in recent weeks had covered a large part of the monetary easing needed.

Investors closed some long euro positions after the comments, scaling back expectations for market interventions by the bank to weaken the crown and help exporters.

"They are going to try keep the crown from either strengthening or weakening excessively," said Ceska Sporitelna analyst Martin Lobotka.

"And they are going to be doing it verbally probably for some time. They are going to try to wait for data coming out from the economy," he added.

(Reporting by Sandor Peto, additional reporting by Jason Hovet. Editing by Jeremy Gaunt.)