The Hungarian central bank matched analysts’ expectations and hiked the base rate by 50bps to 6.50%. As expected the MNB highlighted inflation concerns due to the weaker currency in the statement. It added that it may continue to tighten if financial risks remain elevated, implying another 50bps move on the next meeting in December.
As concern the market reaction, at end of the day Hungarian government bond yields finished higher between 5-17 bps, while the forint was only little changed. Upcoming days and weeks will show whether the recent MNB policy change will be sufficient to stabilize the currency. We believe that yesterday’s rate hike goes into a right direction, but naturally a lot will depend on the euro-zone crisis and outcome of the IMF talks.
Regarding today’s calendar, it contains an interesting auction of the Czech government bond benchmark. We think that the auction will be probably more successful that for example the Slovak bond auction held on Monday (the Slovak debt agency was able to sell just EUR 28 mn). On the other, the demand will come definitely short compared to the original indicative target (CZK 8bn), which was set by the Czech MinFin in much calmer environment.
An initial reaction of the EUR/HUF to MNB’s rate hike was rather calm yesterday. Today, however, the forint has been again under pressure.