According to the International Monetary Fund the Hungarian National Bank could fight inflation more effectively by abandoning the Hugnarian forint’s band, the head of IMF’s European office Christoph Rosenberg explained at a conference in Budapest.
Our view: Although recent developments showed that this issue can support the forint we would not overestimate its impact. IMF had suggested to NBH to switch to free float currency regime already several times and recently NBH said that abandoning 15% floating band is currently not on agenda.
It is necessary to add that currently Hungary has managed float +/- 15% which implies the forint to fluctuate between 240.01 and 324.71 against the euro. We believe that this band is very wide and do not limit the currency much. In addition current surge in inflation is driven by administrative price hikes and new NBH’s inflation forecast is rather optimistic about secondary impact of this price deregulations to inflation, thus we believe that NBH has currently little incentive to change currency regime.