EU summit, rate-setting meeting, weak forint

HUNGARY - In Brief 30 May 2022 by Istvan Racz

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The situation is quite complicated once again. This afternoon, the EU Council's extraordinary summit meeting started. A key issue for the meeting is supposed to be the oil embargo against Russia. The forint was quite weak again, with EURHUF 395-396, in late trade today, as PM Orbán said earlier that talks on the embargo are not standing well. An additional source of forint weakness is tomorrow's MNB rate-setting meeting. The current policy prospect, i.e. a 50 bps base rate hike, followed by 30 bps increase in the 1-week deposit rate on Thursday, has not been able to stop the forint's slow but almost continuous slide recently, and the odds are quite high that this outcome from the MNB would not make the market entirely happy. By now, the point has been reached that the EU would be prepared to leave Hungary (and Slovakia and Czechia, the two countries hiding wisely behind the back of PM Orbán) out of the embargo, saying that oil imports through pipelines, about 10% of total European oil imports from Russia, would be made temporarily exempt from the embargo. They are prepared to do so, because they want to demonstrate unity in the EU (official explanation), and because they do not have any little bit of a legal mandate to order an embargo on energy imports at the moment (unofficial explanation). The likely realisation that the embargo will almost surely make oil substantially more expensive for Europe than currently may be an additional reason for this concession on the EU's part (an even more unofficial explanation), but we do not know for sure, of course. Unsurprisingly, PM Orbán has said today he would be satisfied with this solution, so much that he has not even menti...