On Tuesday, Central European currencies experienced rather calm session. The Hungarian forint posted small losses as the MNB said that a gradual tightening of monetary conditions may be necessary if risk aversion in Europe persisted. Such comments fit in with our scenario. We believe that the MNB might increase interest rates by 50 bps two times in near term future. The MNB officials echoed their Polish fellows as they said that the currency (in this case the forint) is not trading in line with economic fundamentals.
Regarding Poland, figures on inflation for October and current account balance for September were released yesterday. As far as the former is concerned, it surprised to the upside mainly due to a sharp increase in transport costs (+1.7% m/m). Regarding the latter, it pointed to rising Poland’s external imbalance as it showed a deficit of 1.9 bln EUR. Clearly, CAD-to-GDP ratio is heading towards 5% deficit this year. The deficit has not posed a significant risk to the Polish economy so far due to inflow of funds from EU, but the trend is definitely not sustainable in the long term.
Regarding the outlook, we believe that the overall situation in Europe remains negative from the perspective of CE currencies. Therefore, we expect that they could remain under pressure. Nonetheless, in case of the forint and the zloty, one should bear in mind that a policy action either in a form of rate hike (Hungary) or interventions (Poland) to support the currencies is likely. From this perspective, the Czech koruna might be the most vulnerable. Technically, the next target is seen at 26.08 EUR/CZK.