CEE currencies seen shaking off Cyprus effect - Reuters poll

BUDAPEST Wed Apr 3, 2013 6:22pm BST

A worker paints a wall above a branch of Bank of Cyprus in Bucharest April 1, 2013. REUTERS/Bogdan Cristel

A worker paints a wall above a branch of Bank of Cyprus in Bucharest April 1, 2013.

Credit: Reuters/Bogdan Cristel

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BUDAPEST (Reuters) - Currencies in the European Union's emerging markets are expected to strengthen in the coming weeks, returning to last year's firming trend as any effects of the financial crisis in Cyprus fade.

Analysts in a March 29-April 3 Reuters poll said the currencies could gain more than what they have shed so far in 2013 as the EU's economy could start to recover later this year, allowing Central Europe to end monetary easing.

Wobbles in markets in the euro zone, Central Europe's main export market, weighed on the region's currencies in the past weeks due to a financial crisis in euro zone member Cyprus.

The consensus forecasts of the 31 participants see Poland's zloty leading the 12-month gains, firming 4.7 percent against the euro from Tuesday's close to 4.00.

The Hungarian forint could gain 4.2 percent to 290, the Czech crown 3.5 percent to 25.0 and the Romanian leu 1.1 percent to 4.37.

Analysts said the currencies of fundamentally sounder economies - Poland and the Czech Republic - had better prospects from European recovery.

The forint, however, could still post strong gains, extending a recovery after falls to 14-month lows last month which were caused by uncertainty over the course of monetary policy as former economy minister Gyorgy Matolcsy was appointed central bank governor.

The bank could continue cutting its base rate in the next few months after 8 quarter point reductions since August to 5 percent, but cautious comments in the past weeks may indicate that rates may be near the bottom.

Fears still linger that Matolcsy could try to help economic growth with measures that could hit the forint.

Matolcsy will hold a news conference on Thursday. The bank said its analysts were to hold a meeting to discuss ways of boosting lending.

Concerns over public finances may weigh on the zloty in the short term, but the prospects of a pick-up in the economy later this year would buoy the currency, said Piotr Poplawski of Bank BGZ in Warsaw.

Analysts in another Reuters poll late last month said that the Polish central bank was done cutting interest rates and its next move could be a hike next year.

For the crown the key factor is when the Czech central bank, which have already cut rates to near zero, will abandon its rhetoric on possible market interventions against the crown to help the recession-hit economy, analysts said.

"The European economic cycle will be key to determine the appetite for interventions," said Gyorgy Kovacs, analyst of UBS in London. "If there is cyclical rebound in Europe, maintaining the intervention rhetoric will be less and less reasonable."

The forint and the zloty were among the best performing currencies in the world last year.

The leu which underperformed in the region in 2012 due to political uncertainties, has been recovering so far this year, well outperforming the crown, the forint and the zloty.

(Editing by Jeremy Gaunt.)

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