By Sandor Peto
BUDAPEST, May 7 (Reuters) - Central European currencies are
seen regaining some ground later this month after their plunge
caused by euro zone debt woes, and are seen posting strong gains
in the next 12 months, a Reuters poll of analysts showed on
Friday.
The currencies of the European Union's emerging markets fell
sharply this week, with the sell-off also reaching government
bond markets as Europe's debt crisis bolstered risk aversion.
In the poll conducted on May 3-6 with 45 respondents, the
consensus projected a slightly weaker path for the currencies
against the euro in the next few months, but 12-month forecasts
remain close to where they were a month ago.
Volatility is expected to remain high in the next weeks but
most analysts believe losses will not deepen much further unless
the European debt crisis escalates and dries up capital markets.
"Fundamentals are stronger and CEE countries are set to
outperform GIPS (Greece, Italy, Portugal and Spain) in a
volatile environment as long as capital markets are
functioning," Morgan Stanley said in a note on the region.
Hardest hit by the turmoil were the region's most liquid
currencies -- the zloty <EURPLN=> and the forint <EURHUF=> --,
and these units are expected to gain the most in the next year.
The zloty shed about 6.5 percent and the forint 5 percent by
Thursday's close over the week.
The poll projects that the Polish unit could firm over 10
percent to 3.75 against the euro in the next 12 months, a shade
weaker level though than its 3.72 consensus a month ago.
The Hungarian forint is expected to firm by over six percent
to 265, and this is unchanged from last month's forecast.
The projection for Romania's leu <EURRON=> is also unchanged
at 4.0. It would be a five percent gain from Thursday's close,
just like the Czech crown <EURCZK=> for which the 12-month
forecast eased slightly to 24.9 from 24.85.
RECOUPLING OR DECOUPLING?
The recovery of economies and currencies in Central Europe
from the global crisis have lagged other emerging regions.
The region's currencies still posted strong gains in the
first months of the year, clearly decoupling from Southern
European states which have much weaker economic fundamentals and
are now threatened by the debt crisis.
But the extent of this week's contagion from euro zone debt
worries highlights the short-term risk of even bigger losses by
currencies if the EU's economic recovery falls into disarray
over the debt crisis.
Central Europe is heavily reliant on exports into the EU,
the presence of Greek banks pose contagion risks to Romania and
Bulgaria, while Hungary is made vulnerable by its high debt,
even though it is well below Southern European levels.
Analysts warned the debt crisis can engulf Central Europe if
decision makers do not act quick enough to resolve it.
"The price of delay could be contagion spreading to
vulnerable parts of EMEA such as Latvia, Romania, Hungary and
Bulgaria," UBS said.
"But... if the worries ripple through to core Europe... this
will evoke a big reaction from EM (emerging markets) more
generally, and the impact may have more to do with positioning
than on public debt profiles of individual EM countries."
While high volatility and further losses would worry Central
European decision makers, central bank comments in the past
months signalled that some extent of currency weakness which
helps exporters can even please them.
The hands of Czech rate setters did not tremble at the sight
of a 2.5 percent crown fall over the week when on Thursday they
reduced their key interest rate further by 25 basis point to a
record low of 0.75 percent.
Despite the cut the poll sees the crown firming more than 2
percent in the rest of this month to 25.6 against the euro,
though this level is weaker than 25.35 projected a month ago.
The poll median also sees the Hungarian forint regaining
about 3 percent by the end of the month to 273.6 to the euro.
But the central bank (NBH) may take a pause in its monthly
rate cuts unbroken since July as high debt makes Hungary
vulnerable and the incoming centre-right government has
signalled a rise in the 2010 budget deficit target.
"The increased uncertainty might cause the NBH to end its
easing cycle sooner than we currently project," Goldman said.
For data please click on <CEEFXPOLL01>
For more analyst comments on CEE currencies please click on
[]
Other currency polls <FOREXPOLL01> <FOREXPOLL02>
Euro zone enlargement poll []
(Reporting by Sandor Peto; Editing by Toby Chopra)
