Resolute words from the MNB? – Commerzbank

Since late October, the HUF has been on a rollercoaster ride in anticipation of the momentous days of early November (US election, FOMC). After the US election, EUR/HUF rose to over 410. Last week, market concerns that the successor to central bank chief Gyorgy Matolcsy, whose term of office expires in March 2025, could seek a looser monetary policy in view of the weak fundamentals, also weighed on the forint. The current finance minister, Mihaly Varga, is being discussed as a possible new central bank chief. Last week, the government assured that monetary policy would not change much under the new central bank chief and that there was no risk of drastic interest rate cuts, Commerzbank’s FX analyst Antje Praefcke notes.

After the US election, EUR/HUF rises to over 410

“In this mixed environment, the central bank (MNB) now has to decide on its monetary policy today. Nobody expects the key interest rate to change; it is likely to remain unchanged at 6.50%. But we hope to hear decisive words from the MNB. The currency weakness and the volatility of the forint should be a cause for concern for the central bank.”

“The forint tends to be more volatile and prone to runaway in times of heightened risk aversion, which could require emergency measures by the central bank to prevent further currency weakness. In such scenarios, the exchange rate can become a dominant inflation driver, which is why the central bank would probably like to stop these developments early on.”

“Although the forint has recovered somewhat, the last two weeks have shown how vulnerable it is. In this respect, the MNB should show resolve today, even indicating raising interest rates again if necessary, in order to clearly signal to the market that it is prepared to stabilize the exchange rate. The focus of today's meeting is therefore less on current inflation trends and the key interest rate per se, but rather on demonstrating responsiveness and resolve in the face of deteriorating market conditions, and thus stabilizing the HUF.”