On Friday morning, the Hungarian forint
held a relatively tight range as there were no
major impetuses from global markets or for
domestic sources. However, in the afternoon
it started to retreat sharply and broke
through the 274 EUR/HUF level, reaching
new 2.5 year low at 274.45 EUR/HUF.
Today the NBH meeting will be in focus.
Whereas a week ago it was improbable that
central bank would raise rates, the situation
is now quite different. After the forint lost
more than 3% of its value last week, markets
are now expecting a 25-50 bps hike already
today as indicated from valuations of FRA
contracts. Nevertheless latest commentaries
of chief economist Istvan Hamecz indicated
that NBH would focus on the 2008 CPI
target and that temporary inflationary
pressures would not lead to monetary
tightening.
This might imply that NBH could
wait to hike rates. We tend towards the view
that the rates will remain unchanged today.
If our expectations are correct, the forint
might be exposed to further sell-offs.
(CSOB - Investment research)