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2024/03/05 / Erste Group Research

CEE Special Report | Exchange rate development in the region

We look at development of the three floating exchange rates in the region over last couple of years. The Hungarian forint and Polish zloty were weakening against the euro until September 2022, when the EURHUF and EURPLN reached their peaks. The Czech koruna, on the other hand, was appreciating untli April 2023. The CZK only weakened in the course of 2023. The Czech koruna and Polish zloty are as strong against the euro as they were at the beginning of 2020, i.e. they closed the gap. The Hungarian forint remains weaker, however, roughly by 15%. The appreciation of the Czech koruna until mid-2022 is in line with the interest rate differential theory and comes against the weak economic performance. On the other hand, the depreciation of the Hungarian forint and Polish zloty seem counterintuitive. We see geopolitical uncertainty and local political factors as dominating the exchange rate development for these two countries, over last couple of years.

Looking at the real effective exchange rate (REER), we see real appreciation of local currencies against the euro across the region. Real appreciation of the Romanian forint, Polish zloty and Hungarian forint is achieved solely through the relative price channel. Significant real appreciation of the Czech koruna is also boosted by nominal appreciation. Even if we rebase the REER development by the sample average, the real appreciation of the Czech kourna remains the biggest, though the gap to the peers closes partially.

As far as outlook is concerned, the Polish zloty clearly changed the trend after general elections in October 2023. The change of the government, the expected EU funds inflow and stabilization of the political situation should further support the zloty. The Polish central bank will most likely hold off with monetary easing in 2024, while the economy is expected to expand by almost 3%. The EURPLN seems well-anchored around 4.30 at the moment.

The Hungarian forint has been sensitive to the political landscape as well, with external imbalances weighing on the exchange rate development to the greatest extent in the region. We expect modest economic recovery in Hungary in 2024 and the monetary easing to continue in the coming months until the key policy rate reaches 6.5%. We see the EURHUF moving sideways.

The Czech koruna is expected to strengthen during this year. First, a correction of the weakening over the last several weeks is likely. The market may not take into account at the moment that the weak koruna will be a key factor for the central bank to reduce the key policy rate at a slower pace than the market currently expects. During the year, the Czech economy should begin to recover, supporting lower EURCZK levels.

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
Topic in focusFX, Macro/ Fixed income
Economy in focusCEE, Czech Republic, Hungary, Poland
Currency in focusCzech Koruna, Hungarian Forint, Polish Zloty
Sector in focus-


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