CEE MARKETS-Forint pauses rally ahead of Hungarian central bank meeting as currencies retreat

By Krisztina Than

BUDAPEST, Dec 16 (Reuters) - Central European currencies retreated slightly on Tuesday, with the forint easing 0.2% ahead of a Hungarian central bank meeting, which is expected to keep rates on hold, although investors are looking for hints of a dovish shift.

Hungary's forint has surged 6.8% so far this year, outperforming its regional peers and the bank is expected to lower its 2026 inflation projection on Tuesday. As a result, the focus will be on the post-meeting statement.

"In the September projection, inflation for next year was put at 3.8%, while in late November Governor Mihaly Varga already projected inflation of only 3.4-3.6% for 2026," brokerage Equilor said in a note.

"The key question is how much emphasis this change will receive in the statement and whether it could even serve as a preparatory step toward a future shift in communication."

The bank has said the projection in its December inflation report "was going to be crucial from the perspective of next year’s monetary policy stance."

The forint EURHUF= was down 0.2% at 385.30 at 0841 GMT, after a rally that has been supported by Hungary's 6.5% benchmark rate offering a hefty carry trade.

Globally, investors were focused on upcoming U.S. economic data this week.

CAUTIOUS STANCE

A Reuters poll on Friday showed analysts expect the Hungarian central bank to leave rates unchanged for a 15th straight month on Tuesday. The median forecast projects only 50 basis points of rate easing by the end of next year.

The Czech central bank, which meets on Thursday, last cut rates in May and some analysts say they could remain unchanged for all of 2026.

The Czech crown EURCZK= traded a touch weaker at 24.33 per euro, off a peak of 24.1 hit at the start of the month.

Czech bank CSOB said the crown was holding its position around 24.30 EUR/CZK for now.

"In the case of the CNB, we do not think the crown will have much to profit from the meeting (on Thursday) - rate stability and hawkish rhetoric are fully priced in the market and the bar for any surprises is set very high," the bank said.

The Polish zloty, which has firmed only 1.3% this year, also retreated 0.2% versus the euro, trading around 4.222, still hovering off its 8-month high hit on Monday amid ongoing negotiations to end the war in Ukraine.

ING Bank said a slightly higher inflation print for November than that estimated earlier may also have helped the zloty's gains.

"Despite yesterday's strengthening of the zloty, we remain skeptical about the possibility of a sustained decline of the euro/PLN exchange rate below 4.2150," they added.

(Reporting by Jason Hovet)

((jason.hovet@thomsonreuters.com;))