Forint continues to ease ahead of NBH's meeting

Regional insights

Forint continues to ease ahead of NBH's meeting

The Hungarian forint started to weaken during the last weeks in line with our expectation. The main reason behind the move is the possible action taken by the NBH on next week. The Monetary Council was not really happy with the strengthening currency during the summer, so they started some verbal intervention one month ago. The most likely movement for next week is that NBH decreases further the cap of the 3-month deposit from the current level of HUF300bn to HUF150bn till the end of the year and it also cut the O/N interest rate by 10bp from -5bp to – 15bp. The Hungarian central bank would like to see the Bubor rates closer to zero percent which stuck around 15bp in the last months. The money market has already started to price in this rate movement.

We think that in medium term (till the end of the year) there is still room for further weakening of the forint, although the recent movement was quite fast so after next week's rate decision some modest positive correction may happen, though it also depends on FOMC stance next week. In short-term, we see EUR/HUF resistance levels at 310 and 313. Nevertheless in case of a more hawkish FED and ECB stance in the following months we think the EUR/HUF may move even above 315. Based on the NBH's statements we have the feeling that the Council may tolerate easily a weaker forint for months as they have no fear about inflation and they would like to see the short interest rate at low level, to support the households whose FX denominated loans had already been converted to HUF ones with floating rates.

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