Zloty calm ahead of rate decision, forint reverses course

Poland's zloty traded sideways on Tuesday ahead of a central bank meeting when policymakers are expected to hold rates steady, while Hungary's forint eased, weighed down by profit-taking and a firming dollar.

Poland's Monetary Policy Council is expected to extend its easing pause to three months on Tuesday, holding its main interest rate at 5.75%. Economists point to March for a change in stance, though not necessarily a rate change, as the National Bank of Poland will publish its inflation projection then.

"We expect MPC to leave interest rates unchanged on Tuesday. The monetary policy is in a wait-and-see mode and potential further cuts are not expected before March," PKO Bank said in a note.

"The beginning of 2024 will bring a further substantial inflation decline, which will even likely temporarily fall within the deviation band from the inflation target at the turn of 1-2Q. This, in our view, will prompt the MPC to cut rates."

Hungary's forint EURHUF reversed course and weakened by 0.3% to trade at 378.4 by 0905 GMT to the euro. It had firmed for five consecutive sessions since the beginning of 2024, making it the leader among central-European currencies with a gain of 1.3% this year.

A Budapest-based trader said Tuesday's fall was driven by profit-taking and the firmer dollar, saying U.S. CPI data scheduled to come out on Thursday and the Hungarian inflation report on Friday could generate bigger moves.

The zloty EURPLN traded sideways as investors were cautious ahead of the policymakers' meeting.

"The zloty remains calm, moving around the level of 4.33 per EUR at the start of today's session. Stabilization today will be supported by 1) waiting for the outcome of the Monetary Policy Council meeting and 2) a poor calendar of foreign data ensuring calm on core markets," Bank Millennium said in a note.

The National Bank of Poland (NBP) is scheduled to publish its statement later on Tuesday and to hold a press conference on Wednesday at 1500 CET (1400GMT).