The unit weakened initially in step with the Polish zloty, but then it recovered slightly after a meeting of the Monetary Council. Nevertheless, the currency lost these gains at the end of the domestic trading and the EUR/HUF parked deeply in the 262 area. The key event domestic event was the Council’s meeting. While the NBH confirmed our expectations in terms of the official rate (the central banks stayed on hold), the Monetary Council and the NBH President Jarai surprised us with their comments. Contrary to our expectations the central bank did not sound hawkish at all. Moreover, Governor Jarai even downplayed the role of the (weak) forint in NBH’s monetary policy, when he said that the medium-term inflation target can not be linked to any particular exchange rate level. In our view this not a good news for the forint, because if the market sentiment remains poor, it will start to test at which EUR/HUF level the central bank will get finally nervous. So far, there was a general view that EUR/HUF permanently above 260 could trigger a rate hike. However, yesterday’s comments pushed this level much higher, probably to the EUR/HUF 270 level.
Today, while the domestic calendar is empty, the unit will focus on the core bond markets, which has turned negative this morning. This is not a good signal for the forint, which has now a poor backing from the central bank.
(CSOB - Investment research)