MNB likely to cut limit on 3-month deposit facility in September, EUR/HUF to rise to 310 levels - Commerzbank

The Hungarian central bank verbally intervened on Thursday to stop forint appreciation. It was not exactly ‘verbal’. It was a written response to Reuters. The Monetary Policy Committee had affirmed earlier in the week during its meeting that it continues to hold an easing bias; however, this was having no effect on the currency. One reason might be that the Hungarian forint is firming because of extra portfolio inflow at the expense of Poland as Poland appears risky on politics. This set off MNB’s intervention on Thursday.

The Hungarian central bank stated that it was closely examining fresh ways to ease monetary policy, which made the forint back off for some time. The Hungarian central bank is expected to lower the limit on its three-month deposit facility again in September, noted Commerzbank in a research report.

According to Commerzbank, the fresh QE should not be required: the forint is expected to depreciate anyway, driven by Hungary’s considerably negative real interest, once the risk premium on Polish assets have started to normalize. It is quite difficult envisage that article 7 sanctions would actually be applied on Poland, as Hungary is expected to veto it. Therefore, the tide might turn back on this front in the months ahead, and that should put an end to the extra capital inflow Hungary has been experiencing.

“We see EUR/HUF rising gradually back towards 310.00 levels” added Commerzbank.

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