(For other news from the Reuters Central European Investment
Summit, click on
http://www.reuters.com/summit/CentralEuropeanInvestment10)
* Central Europe sees benefits from currencies firming
* Portfolio inflows up but less violent
* Stronger zloty, crown, forint help on inflation
* Appreciation less damaging to exports than in Asia, Latam
By Michael Winfrey and Sebastian Tong
VIENNA, Oct 13 (Reuters) - While emerging economies
elsewhere in the world are struggling to halt appreciation of
their currencies, central Europe is reaping benefits from
currency strength.
The gradual rise of local currencies against the dollar and
euro is limiting Poland's debt as a ratio of annual output,
easing repayment of Hungary's foreign currency loans, and
reducing inflation in the Czech Republic and across the region.
Policymakers believe currency appreciation is helping more
than harming their economies, implying central Europe will not
join the global "currency war" in which many countries are
resisting appreciation to retain a competitive advantange for
their exports.
Two central bank officials from the Czech Republic, where
exports represent 80 percent of gross domestic product, said
this week that they saw no problem with this year's 7.5 percent
appreciation of the crown, the region's best performing
currency.
"It is not so strong as to provoke a problem both from
monetary policy and from exporters at this moment...not the
recent move, not the level," central bank board member Kamil
Janacek told the Reuters Central European Investment Summit.
He added that Czech companies could handle annual
appreciation of around 4 percent against the euro every year, a
sentiment echoed by central bank Governor Miroslav Singer, who
also said the crown was returning to its long-term nominal
appreciation path.
"Foreign trade does not give, for the time being, too many
signals that the exchange rate would be unsustainable."
The crown <EURCZK=> traded at 24.495 per euro early on
Wednesday. Its three-month average was about 25.02, a touch
stronger than the central bank's forecast of 25.3 for the third
quarter.
A strong economic recovery this year in Germany, a top
export market for central Europe, is helping to limit the
negative impact of currency appreciation.
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Graphic on emerging Europe: http://r.reuters.com/kyk47p
For a TAKE-A-LOOK, click []
For a FACTBOX on credit ratings in central Europe, click
[])
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ZLOTY BENEFITS
Asian and Latin American policymakers are fighting a flood
of incoming liquidity fuelled by ultra-loose monetary policy in
major developed economies such as the United States and Japan.
Thailand and Brazil, for example, have slapped taxes on foreign
portfolio investment in their markets.
In central Europe, inflows have been less violent this year,
because the region is more directly exposed to the euro zone's
debt crises, economic growth has been slower, and governments
have not yet tamed sizeable budget deficits.
In the last several months a wave of portfolio investment
has begun to flood into the region, particularly into Poland, a
38-million-strong economy expected to be among the European
Union's growth leaders this year.
But Polish monetary council member Elzbieta Chojna-Duch said
the rise of the zloty <EURPLN=> -- 4.8 percent since July 1 --
could help temper inflation, which a majority of analysts polled
by Reuters expects to prompt a rise in interest rates by
year-end.
The zloty's firmness also suggests there is only a remote
prospect of significant currency depreciation which, by
inflating the value of Poland's foreign debt, could push up the
ratio of its government debt to gross domestic product.
A rise of this ratio, estimated at 53.2 percent this year,
to above 55 percent of GDP under local accounting standards
would be politically and economically problematic because legal
restrictions would trigger painful state spending cuts.
"Our calculations show that a 10 percentage slippage from
the current level of the zloty could lift the public debt to GDP
ratio by 1.4 percentage point," Bogdan Klimaszewski, deputy head
of the finance ministry's debt department, told the summit.
In August, foreign investors' holdings of government debt
grew by 11.1 billion zlotys to a record 124.6 billion zlotys.
Foreign investors have increased involvement in Polish debt by
42.8 billion zlotys since January, finance ministry data shows.
"These kind of investors are good from our point of view, as
they are mostly long-term investors," Klimaszewski said.
He predicted the zloty would gradually strengthen further, a
view backed up by a Reuters poll showing analysts expect the
currency to firm to 3.78 against the euro in the next 12 months,
from around 3.96 now. []
HUNGARIAN MORTGAGES
Hungary is also benefitting. With around half of all
household debt there denominated in Swiss francs <HUFCHF=R>,
borrowers there suffered a huge blow this year as the forint
plummeted to an all-time low against the Swiss currency.
Having taken out loans with the forint trading at around 150
per franc three years ago, mortgage holders' monthly payments
spiked when the country had to take an international bailout
during the global economic crisis. The rate climbed to over 220.
But the forint has gained around 5 percent against the franc
and the euro <EURHUF=> since early September, somewhat easing
pressure on borrowers and banks.
Laszlo Wolf, deputy CEO of the country's biggest bank OTP,
said non-performing loans had peaked this year.
"We don't expect further worsening because...the Hungarian
forint became stronger in the last few weeks," he told the
Reuters summit.
"The Swiss franc is not over 220 anymore, but it's around
200 - which is still relatively weak compared to the original
level of borrowing but still much better than at 220."
(Additional reporting by Krisztina Than, Jan Lopatka, Dagmara
Leszkowicz and Karolina Slowikowska; Editing by Andrew Torchia)
