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Currencies firm on robust Q3 GDP, labour shortage a key risk

Currencies firm on robust Q3 GDP, labour shortage a key riskBUDAPEST/BUCHAREST: Central European currencies and equities rose on Tuesday after robust third-quarter economic output figures from the region, led by the 8.8 percent annual growth rate in Romania.

Romania’s expansion, which exceeded all analyst forecasts, picked up from 6.1 percent in the second quarter. Czech growth accelerated to 5 percent from 4.7 percent, Poland’s to 4.7 percent from 4 percent, and Hungary’s to 3.6 percent from 3.3 percent.

The leu and the forint gained 0.1 percent against the euro by 0918 GMT. The zloty rose 0.2 percent.

Romania’s leu, trading at 4.648, was still off Monday’s record lows of 4.657. It weakened through the 4.6 line after the Romanian central bank said last week that it would focus on keeping market interest rates close to its benchmark rate and loosen its grip on the currency.

A jump in inflation could lead to interest rate increases next year, fiscal stimulus would also need to be cut back, and the scarcity of labour resources will lead to a slowdown in growth, said ING analyst Ciprian Dascalu.

But this year’s higher output will make Romania’s budget and current account deficits and public debt look better.

“It looks that some worries could be offset by the economy growing its way out of troubles,” Dascalu said.

Slower-growing Hungary has not faced overheating concerns, and the Hungarian central bank may ease policy further at its meeting next week, dealers said.

“It may introduce long-term FX swaps,” one dealer said.

A labour shortage may limit Hungary’s growth, therefore “fast wage dynamics could remain, which could increase consumption, and firms will be forced to invest in technology and machinery,” Takarekbank analyst Gergely Suppan said.

The crown of the Czech Republic, which has the tightest labour market in the EU, eased a tad after the data.

Trading at 25.565 against the euro, it remained near four-year highs, and expectations the Czech central bank will raise interest rates may strengthen it further in coming months. .

In equities markets, Budapest led gains, with its main index rising 0.85 percent. Government bonds changed little in the region.

Copyright Reuters, 2017

Source: Brecorder.com

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