Forint gives up its gains received after NBH's meeting

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Forint gives up its gains received after NBH’s meeting

Czech bond prices surge as some market participants bet on introduction of negative CNB’s rates

The Hungarian forint gave up part of its gains, which accumulated after the latest NBH meeting on Tuesday. The part of the easing story could be attributed to profit taking on the Hungarian bond market after yesterday’s auctions. Nevertheless there is obviously bigger threat for the forint and it is the Fed policy. Let us remind that it was the IMF yesterday, which warned in its ‘Spill-over report’ that large FX debt liabilities are (still) significant in Hungary and this might cause sudden capital outflows once there is tightening in developed countries (particularly from the Fed side).

Meanwhile Czech government bonds continue to gain following yesterday’s interview of Tomas Holub from CNB’s staff, who vowed a possibility of introduction negative interest rates. It is worth noting that CNB’s Chief of the Monetary Department Holub was quite explicit as he said that the CNB could apply negative rates in its repo and depo facilities (one-day, 2-weeks repo tenders), while interest rates for (required) minimum reserves would stay at zero level. Clearly given the strong koruna and necessity to accumulate FX reserves, it is become more and more likely that the CNB will opt for negative official rates (as it’s a new unconventional instrument). In this respect, it is not surprising that Czech bonds become attractive – especially, if external factors like falling commodity prices help bonds globally too.