BUDAPEST. MARCH 20. INTERFAX CENTRAL EUROPE - The Hungarian government sees no practical reason at present to scrap the forint's intervention band, and such a decision is not currently on its agenda, a finance ministry official said Tuesday.
"There is no practical reason right now to abandon the band," Finance Ministry State Secretary Almos Kovacs told reporters. "There is no proposal at present based on which talks could be conducted on the matter."
The Hungarian forint has appreciated significantly in the past few days, following a decision in Slovakia to revaluate the koruna's central parity rate, which has led to increased speculation that Hungary could also execute a similar move by abandoning the current intervention band of the forint.
The forint trades in a +/- 15% intervention band around a central parity rate of HUF 282.36 to the euro, while the EUR/HUF rate stood at 246.18 at noon Tuesday.
Kovacs said that while the government agrees "in theory" with the view that a free-floating currency better complements inflation-targeting systems such as the one followed by Hungary's central bank (MNB), there is no practical reason to eliminate the band.
"Because the band is so wide, the band itself does not pose a problem," said Kovacs. "In addition, the latest inflation report by the MNB also indicates that the forint does not have be stronger than the edge of the band in order to meet this year's inflation target."
The MNB's medium term target is 3% inflation, with the bank's latest forecast projecting 7.4% inflation for the end of 2007 and 3.4% for end-2008.
Kovacs also pointed out that free-floating currencies tend to show bigger fluctuations, while "lower fluctuations bring notable advantages to the Hungarian economy." The lack of a trading band also sometimes leads to "excessive, unexpected" reactions, he added.
A decision on abandoning the intervention band has to be made jointly by the Hungarian government and MNB.