BUDAPEST, Oct 9 (Reuters)Central European currencies firmed on Friday, with the Hungarian forint extending gains after a lower-than-expected September inflation reading took pressure off the central bank and the trade balance posted a sizeable surplus in August.

While the decline in inflation temporarily relieves the National Bank of Hungary, which is battling inflation and deepening recession worries, risks in Central European and emerging markets are high as COVID-19 cases spike.

“The slowing pace of recovery in CEE and the rising number of new COVID-19 cases will likely keep risks elevated,” Morgan Stanley analysts said in a note.

“While we think that the benign September inflation print will ease some of the pressure for the (Hungarian) central bank to deliver tighter monetary conditions, we think that it is too early for it to consider realigning the one-week depo rate to the base rate at 0.60%.”

The bank hiked the one-week depo rate by 15 basis points to 0.75% on Sept. 25, which helped shore up the weakening forint and reverse a negative trend.

On Friday, the forint EURHUF= was up 0.1% at 357.20 to the euro, after it outperformed peers on Thursday.

Hungary posted a foreign trade surplus of 251 million euros ($295.98 million) in August, above analyst forecasts for 140 million.

The Czech crown EURCZK= was also 0.1% firmer, even though the Czech Republic’s daily cases of the novel coronavirus rose to 5,394 on Thursday, the third record tally in a row.

“Thursday was a bad day for the CZK rates, (on) the long end dropping by 6 bps on disappointing retail sales, a record number of new COVID-19 cases and tighter government restrictions announced in the afternoon,” Komercni Banka trader Marek Lesko said in a morning note on Friday.

The Czech government will tighten anti-coronavirus measures from

By Miroslava Krufova and Alan Charlish

WARSAW (Reuters) – The Czech crown

looks set to lead the charge as central and eastern European currencies bounce back over the next 12 months from recent losses on hopes of improvement in the global pandemic situation, a Reuters poll found.

September was a difficult month for CEE currencies, with the crown, the Polish zloty

and the Hungarian forint

losing 2-3% as rising numbers of coronavirus cases stoked fears of a damaging second wave.

However, according to the poll of 39 analysts, the crown will gain 4.6% versus Wednesday’s European close to 25.80 against the euro in a year, as pandemic worries calm and the focus shifts back to fundamentals.

“While uncertainty regarding the second wave of the pandemic and regarding the impact of related restrictions on economic activity may last also in the coming weeks, I think the CEE currencies over-reacted with their recent depreciation,” said Radomir Jac, Chief Economist at Generali Investments CEE in Prague.

“The macroeconomic background remains supportive for the view that the Czech crown will recover from its recent losses as soon as concerns regarding the impact of the pandemic moderate.”

In Hungary, where the central bank faces a deep recession coupled with rising inflation, the forint is seen firming 1.4% against the euro to 358.50 in a year. However, expectations are less optimistic than in September when the forint was expected to be the region’s best-performing currency.

“HUF is to remain under pressure mainly because of the flight to safety due to the upcoming uncertainty regarding the U.S. elections and the COVID-19 situation,” said Peter Virovacz, senior economist at ING in Budapest.

“Hopefully the worst will be behind us by the second quarter of 2021 and then we will see some appreciation in the EM