Erste Bank analysts witness stabilizing of emerging currencies

“We see further stabilisation potential for the region’s currencies, at least at the twelve-month horizon as most countries will apply a more restrictive monetary policy, though the basic conditions will vary considerably from country to country. Hungary and Slovakia will be the exceptions” say analysts of Erste Bank. “The development of the economy in Hungary will still be determined in large part by the measures to reduce the current account and budget deficits, whereby interest rates and inflation will both fall slowly. In Slovakia, the monetary policy will largely be determined by the decision on accession to the EMU [Ed. N. European Monetary Union] in 2009”, continue the analysts.

The correction on the U.S. real estate market is expected to continue. This will eventually pull home prices down and hamper economic growth in the forthcoming quarters. The situation will be further exacerbated by uncertainty as to what extent U.S. financial institutions will have to write off more loans. Conditions are likely to remain strained in the first quarter of next year as interest rate adjustments bring another wave of mortgage defaults. The financial market is currently focusing a great deal of attention on the Federal Reserve, and it seems possible that interest rate cuts will be made purely to stabilise the situation.

“We expect that the US dollar will recover next year. The market’s expectations of U.S. interest rate cuts seem to be overblown, and the weakening of the greenback over the past months may have caused market players to sell dollars now instead of next year”, say analysts of Erste Bank.