The Hungarian central bank decided to keep the base rate unchanged. Interestingly, the biggest outcome coming from the meeting was the decision that the MNB would make available part of its FX reserves for banks, which could ease the tensions on the FX market. The forint reacted with a sharp (2%) strengthening to this news, although no details available about the form of foreign exchange supply.
As concern the MNB monetary policy outlook it seems that the bank will not act pre-emptively but it will rather wait-and-see how actual inflation figures are developing.
Despite the fact that the forint sharply recovered the Czech koruna has been heading towards the opposite direction. The EUR/CZK pair broke above the resistance level at the 24.65 level and move sharply higher. There could be different reasons why the koruna decoupled from the rest of the region yesterday. One of them could be a bet of some big market players that an outcome of Thursday’s CNB will bring a significant dovish signal or even a rate cut. We do not believe in such a scenario, although the CNB will probably move to a more dovish stance. In this respect some weakening the koruna is definitely warranted so our short-term target for the EUR/CZK pair stand at the 25.0 level. On the other hand dovish expectations for the CNB meeting could support prices of Czech government bonds – even in the primary market (the MinFIn sells a 3Y government benchmark today).