Thoughts on the current CEE currency landscape

By Mats Olausson - chief emerging markets strategist and Magnus Lilja, head of FX and emerging markets sales at SEB

Mats Olausson Magnus Lilja Recent dramatic sell offs of emerging markets assets have seen CEE currencies suffering substantial falls. This has been largely driven by overseas institutional investors reducing exposure to the CEE markets. On the corporate side there has been an increased demand across the region for risk management using forwards, swaps and to some extent options. So also the use of interest rate derivatives to hedge bullet or amortising liabilities in their balance sheets. These would cover shorter maturities up to durations of less than five years. At the same time we have already seen through the Bank of International Settlements triennial surveys of foreign exchange trading, the growth of trading in the local CEE currencies over the last 15 years. We are seeing an increasing amount of imports denominated in local currencies as overseas suppliers become more willing to take the currency risk. Moreover, as foreign trade growth exceeds that of GDP, this trend is likely to continue....continued

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