CEE FX: Normalizing Interest Rates Open Door for Gains, ING Says

Central European foreign exchange markets are poised for potential gains as interest rates across the region normalize, according to a recent analysis from ING. The shift in monetary policy, which includes rate cuts and stabilization, is creating a more favorable environment for currencies such as the Polish zloty (PLN), Hungarian forint (HUF), and Czech koruna (CZK), as of the latest assessment.

Interest Rate Normalization in Central Europe

Central banks in the Czech Republic, Hungary, and Poland have been actively adjusting their benchmark rates following a period of aggressive tightening to combat inflation. As of early 2025, the Czech National Bank (CNB) has cut rates from a peak of 7.00% to 4.75%, while the Hungarian central bank has reduced its base rate from 13.00% to 6.50%. The National Bank of Poland has held its rate steady at 5.75% after a series of cuts in 2023. ING analysts suggest that this normalization process, which aligns with the European Central Bank’s (ECB) own easing cycle, is reducing the risk premium on CEE currencies and attracting investor interest.

Implications for Key Currencies

The Polish zloty has already strengthened against the euro in recent months, trading around 4.30 per euro as of late 2024, supported by a stable economic outlook and consistent foreign direct investment. The Hungarian forint, which had been volatile due to high inflation and political uncertainty, has stabilized near 380 per euro. ING notes that further gains are possible if the central bank maintains a cautious approach to rate cuts. The Czech koruna, meanwhile, has benefited from the CNB’s proactive easing, which has boosted domestic demand and export competitiveness.

Market Context and Investor Sentiment

The normalization of rates in CEE is occurring against a backdrop of global monetary easing, with the ECB and the US Federal Reserve also signaling potential rate cuts. This synchronized cycle reduces the risk of capital outflows from emerging markets, a key factor for CEE currencies. ING’s analysis emphasizes that while risks remain—such as geopolitical tensions in the region and global trade uncertainties—the overall trajectory for CEE FX is positive, provided central banks continue to communicate their policy intentions clearly.

Conclusion

ING’s outlook suggests that the CEE foreign exchange market is entering a phase of relative stability and potential appreciation. For investors and businesses operating in the region, the key takeaway is that normalized interest rates are reducing volatility and opening up opportunities for gains, particularly in the Polish zloty and Hungarian forint. However, continued monitoring of central bank policies and global economic conditions remains essential.

FAQs

Q1: What is interest rate normalization in the context of CEE FX?
Interest rate normalization refers to central banks in Central and Eastern Europe adjusting their benchmark rates from historically high levels to more neutral or lower levels, following a period of aggressive tightening. This process aims to balance inflation control with economic growth, and it influences currency valuations by affecting investor returns and capital flows.

Q2: Which CEE currencies are most likely to see gains according to ING?
ING’s analysis highlights the Polish zloty (PLN) and Hungarian forint (HUF) as having the most potential for gains, given their central banks’ rate policies and improving economic fundamentals. The Czech koruna (CZK) is also expected to perform well, supported by the CNB’s proactive easing cycle.

Q3: What risks could affect the CEE FX outlook?
Key risks include geopolitical tensions (such as the ongoing conflict in Ukraine), global trade disruptions, unexpected changes in central bank policies, and shifts in investor sentiment toward emerging markets. Additionally, if inflation reaccelerates, central banks may pause or reverse rate cuts, which could weaken currencies.