Firmer currencies in Central, E Europe spawn no panic
Saturday, 30 April 2011
Lidia Moise
Stronger currencies in Central and Eastern European countries have stopped short of raising too many eyebrows given solid fundamentals of the economies in the region, economists say. The devastating earthquake, tsunami and the ensuing nuclear crisis in Japan and the ongoing unrest in Arab countries have made international investors look for safe havens, making Central and Eastern Europe an alternative destination for their money, said analysts from Raiffeisen Capital in a note to investors. The quantitative easing monetary policy of the U.S. Federal Reserve, which is leading to an ever weaker U.S. dollar, is also contributing to the sudden strength of currencies in Central and Eastern Europe. "The investors are loosing faith in the U.S. dollar... Therefore they want to diversify, and that's the reason we see for the strengthening of Central and Eastern European currencies," said Mark Mobius, executive chairman of Templeton Asset Management. But stronger currencies are not sending shock waves through these nations as people are confident about their economic fundamentals, analysts believe. The Polish zloty, for instance, is supported by a strong economy, the only one in the entire European Union (EU) that avoided recession in 2009. Actually the Polish authorities would like to see the zolty gain value in the course of the year so that its public debt would not exceed the 55percent of GDP threshold. To that end, the zolty needs to reach 3.8 against the euro by year-end from today's 3.94. Analysts from Italy-based Unicredit bank believe that the Polish zolty would indeed appreciate in 2011. On the other hand, a stronger zolty would help fend off inflation pressure, which the Polish authorities believe comes from higher commodity prices on the international market. "A firm currency can alleviate inflationary pressure from commodity prices, whereas higher interest rates cannot," said Rainer Singer, chief analyst at Erste Bank. He estimated that Poland may use 13 billion to 15 billion euros (19 billion to 22 billion U.S. dollars) to keep the upward trend of the zolty. If inflation makes a difference on currency exchange policy in Poland, the Czech koruna faces no pressure from this side. While Polish inflation is almost 2 percentage points above the inflation target and may rise further, Czech inflation declined further and could stay below the target for the coming months. The Czech Republic pursues a much more restrictive fiscal policy than Poland. But the Czech labor market is clearly in much worse shape. That explains why the Czech central bank can afford to maintain interest rates at historically low levels for the first half of the year, noted analysts from the KBC banking and insurance group. The Czech currency shows an upward trend as the market welcomes the news that the government will continue with reforms. The Hungarian forint has also gained value since the beginning of the year. "In the environment of a weakening dollar, the forint could perform very well, and this was also backed by positive domestic news," said Zoltan Arokszallasi, senior analyst at Erste Bank Hungary. "Besides the external reasons and developments on the fiscal side, the strength of the forint is also underpinned by the higher than expected trade surplus," added Arokszallasi. But he predicted that the appreciation of the forint will slow down in the coming weeks. Investors, who are betting on currencies of Central and Eastern European countries, are ignoring sovereign debt crises in certain European countries, particularly in Greece, a close partner of some Central and Eastern European countries. No one is panicking in Central and Eastern European markets as the economies are in a far better shape today than at the onset of the global financial crisis in 2008, explained Danske Bank's analysts in a market report. Despite investor confidence, Romania's central bank governor Mugur Isarescu remained cool. "We don't see more space to lower the interest rate... Maybe we'll become more innovative," he said. The governor still feels uncomfortable about what happened in the fall of 2008, when his country's currency fell prey to a speculative attack. "Hot bullets flew near your ears and we should not forget how dangerous a financial crisis can be," he warned. He said he is considering innovative monetary measures to avoid excessive appreciation of the country's currency, the leu. But his advisor, Lucian Croitoru, said that there are no signs of speculative attacks on the Romanian currency at the moment. "The fundamentals of the Romanian economy are healthy, the investors show confidence in the economy as the recession is over," he said. Lucian Anghel, senior economist at Banca Comerciala Romana, revised up economic growth to 2 percent for 2011, citing better market sentiments and the start of some ambitious infrastructure projects in the next months. "We have decided to revise upwards our real GDP growth forecast for 2011. We do not rule out the chances of the economy growing a little more quickly, if foreign direct investments see a faster recovery," he said. Foreign direct investment doubled in January-February to 294 million euros (435 million dollars) and there are signals that global investors are again putting Romania on their map. The new precautionary stand-by arrangement with the IMF and EU, as well as a regaining of investment grade status in 2012, are conducive to higher foreign investment inflows in the future. In 2012, economic growth could be 3.9 percent. In a long-term perspective, the current levels of Central and Eastern European currencies may still look attractive. However, volatility will likely remain as long as the debt crises in some eurozone countries continue and rising oil and food prices persist. - Xinhua
Stronger currencies in Central and Eastern European countries have stopped short of raising too many eyebrows given solid fundamentals of the economies in the region, economists say. The devastating earthquake, tsunami and the ensuing nuclear crisis in Japan and the ongoing unrest in Arab countries have made international investors look for safe havens, making Central and Eastern Europe an alternative destination for their money, said analysts from Raiffeisen Capital in a note to investors. The quantitative easing monetary policy of the U.S. Federal Reserve, which is leading to an ever weaker U.S. dollar, is also contributing to the sudden strength of currencies in Central and Eastern Europe. "The investors are loosing faith in the U.S. dollar... Therefore they want to diversify, and that's the reason we see for the strengthening of Central and Eastern European currencies," said Mark Mobius, executive chairman of Templeton Asset Management. But stronger currencies are not sending shock waves through these nations as people are confident about their economic fundamentals, analysts believe. The Polish zloty, for instance, is supported by a strong economy, the only one in the entire European Union (EU) that avoided recession in 2009. Actually the Polish authorities would like to see the zolty gain value in the course of the year so that its public debt would not exceed the 55percent of GDP threshold. To that end, the zolty needs to reach 3.8 against the euro by year-end from today's 3.94. Analysts from Italy-based Unicredit bank believe that the Polish zolty would indeed appreciate in 2011. On the other hand, a stronger zolty would help fend off inflation pressure, which the Polish authorities believe comes from higher commodity prices on the international market. "A firm currency can alleviate inflationary pressure from commodity prices, whereas higher interest rates cannot," said Rainer Singer, chief analyst at Erste Bank. He estimated that Poland may use 13 billion to 15 billion euros (19 billion to 22 billion U.S. dollars) to keep the upward trend of the zolty. If inflation makes a difference on currency exchange policy in Poland, the Czech koruna faces no pressure from this side. While Polish inflation is almost 2 percentage points above the inflation target and may rise further, Czech inflation declined further and could stay below the target for the coming months. The Czech Republic pursues a much more restrictive fiscal policy than Poland. But the Czech labor market is clearly in much worse shape. That explains why the Czech central bank can afford to maintain interest rates at historically low levels for the first half of the year, noted analysts from the KBC banking and insurance group. The Czech currency shows an upward trend as the market welcomes the news that the government will continue with reforms. The Hungarian forint has also gained value since the beginning of the year. "In the environment of a weakening dollar, the forint could perform very well, and this was also backed by positive domestic news," said Zoltan Arokszallasi, senior analyst at Erste Bank Hungary. "Besides the external reasons and developments on the fiscal side, the strength of the forint is also underpinned by the higher than expected trade surplus," added Arokszallasi. But he predicted that the appreciation of the forint will slow down in the coming weeks. Investors, who are betting on currencies of Central and Eastern European countries, are ignoring sovereign debt crises in certain European countries, particularly in Greece, a close partner of some Central and Eastern European countries. No one is panicking in Central and Eastern European markets as the economies are in a far better shape today than at the onset of the global financial crisis in 2008, explained Danske Bank's analysts in a market report. Despite investor confidence, Romania's central bank governor Mugur Isarescu remained cool. "We don't see more space to lower the interest rate... Maybe we'll become more innovative," he said. The governor still feels uncomfortable about what happened in the fall of 2008, when his country's currency fell prey to a speculative attack. "Hot bullets flew near your ears and we should not forget how dangerous a financial crisis can be," he warned. He said he is considering innovative monetary measures to avoid excessive appreciation of the country's currency, the leu. But his advisor, Lucian Croitoru, said that there are no signs of speculative attacks on the Romanian currency at the moment. "The fundamentals of the Romanian economy are healthy, the investors show confidence in the economy as the recession is over," he said. Lucian Anghel, senior economist at Banca Comerciala Romana, revised up economic growth to 2 percent for 2011, citing better market sentiments and the start of some ambitious infrastructure projects in the next months. "We have decided to revise upwards our real GDP growth forecast for 2011. We do not rule out the chances of the economy growing a little more quickly, if foreign direct investments see a faster recovery," he said. Foreign direct investment doubled in January-February to 294 million euros (435 million dollars) and there are signals that global investors are again putting Romania on their map. The new precautionary stand-by arrangement with the IMF and EU, as well as a regaining of investment grade status in 2012, are conducive to higher foreign investment inflows in the future. In 2012, economic growth could be 3.9 percent. In a long-term perspective, the current levels of Central and Eastern European currencies may still look attractive. However, volatility will likely remain as long as the debt crises in some eurozone countries continue and rising oil and food prices persist. - Xinhua