CEE FX: Higher rates to stabilise regional currencies – ING

ING’s Frantisek Taborsky reports that surging Oil and gas prices triggered a sharp hawkish repricing of policy paths in Poland, the Czech Republic and Hungary, taking implied tightening back to stressed March–April peaks. While ING’s economists keep their rate forecasts unchanged, they see higher market rates offering some protection and helping stabilise CEE FX despite a stronger Dollar and risk-off sentiment.

Hawkish repricing and fair-value levels

"The CEE region was hit hard yesterday by the global rise in oil and gas prices, triggering a sharp repricing of implied policy-rate paths. In Poland and the Czech Republic, markets effectively added one extra hike, taking implied tightening to 90bp in the Czech Republic and 70bp in Poland. In Hungary, markets priced out roughly half a cut, leaving only two cuts implied. This brings pricing back to or even above the stressed March-April peaks."

"Our economists are keeping their forecasts unchanged for now: no rate change in Poland or the Czech Republic, and continued cuts in Hungary to 5.00% by year-end. The move appears to reflect stop-losses on earlier receiver positions and a broader positioning reversal. Given the scale of the oil and gas price increase and strong relationship with front-end rates these days, hawkish repricing could continue today unless the geopolitical backdrop improves."

"On the positive side, higher market rates offer some protection for CEE FX, which has been under pressure in recent days. Based on rate differentials in our models, fair-value levels are around 4.290-4.300 for EUR/PLN and 24.100-24.150 for EUR/CZK. A stronger US dollar and risk-off sentiment will likely limit CEE FX upside in the current environment, but higher rates should at least help stabilise regional currencies."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)