The Hungarian forint reached new historical-low levels against the euro in the second half of 2019. The EUR/HUF movements proved rather volatile and the exchange rate reacted solidly to global developments, especially to trade and Brexit tensions, noted Erste Group Research in a report.
Furthermore, the surplus on the C/A balance disappeared, while the slow normalization of the monetary policy that started in March came to a halt in September, resulting in falling interbank market rates. These all have kept the forint exchange rate on a softening path.
“We do not predict any relevant step pointing to monetary tightening; however, no loosening step is expected, either”, noted Erste Group Research.
To maintain stable money market rates and at relatively low levels, direct management of interbank market liquidity is likely to stay crucial.
“As a result, the strong correlation between movements of the EUR/HUF and the magnitude of crowded-out liquidity would remain. The currency pair could trade in a volatile range around our 335 point estimate”, added Erste Group Research.
