EUR/HUF likely to trade sideways around the 330 mark and later in Q1 2020, says Commerzbank

The EUR/HUF currency pair is expected to trade sideways around the 330 mark and later in Q1 2020, when inflation is forecast to actually moderate, to decline towards the 325 mark, according to the latest research report from Commerzbank.

The Hungarian central bank left all monetary policy parameters unchanged yesterday. While the MPC sounded dovish in highlighting downside risk to the inflation outlook, the central bank is not expected to loosen policy immediate but may maintain status quo until the December Inflation Report.

The central bank has just reviewed its monetary policy toolkit: it announced that it will soon further simplify the unconventional instruments which target short-term yields, and will also fine-tune instruments which target long-term yields.

Such changes may be finalised at the time of the Q4 Inflation Report. Last month, the central bank had increased its QE volume (of forint swaps) by HUF100 billion; yesterday it did not expand this volume further, nor did it announce any expansion of its HUF300 billion corporate bond buying programme, the report added.

One reason could be the review of tools mentioned; but a second reason could be that core inflation measures accelerated, against expectations, since the last MPC meeting. Not that this has changed MNB's view on inflation substantially: the MPC yesterday again emphasised downside risk to inflation forecasts because of weakness across the euro zone.

"Hence, in the medium-term, we expect MNB to unveil additional monetary easing measures and we do not rule out a reduction in the depo rate either because the ECB is likely to do the same," Commerzbank further commented in the report.