EURHUF 337.50 - a new historic low for the forint

HUNGARY - In Brief 23 Jan 2020 by Istvan Racz

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Following an uptick earlier this week, as the MNB rejected all bids at its FX tender on Monday, the forint fell to a new historic low against the euro for a short while in early trade today. We see a good chance that the MNB does not like the forint being this weak at a time when it expects headline inflation at 4.3% yoy in January, and that it would like the continuation of the existing weak trend for the forint even less. So the real question is what the Bank is likely to do and when.Well, in principle they could do anything at any time, but acting immediately on a variable that the Bank has officially called uninteresting for policy would look a kind of a disorderly haste, which is always suspicious. But they do not need that haste: they will have next week's FX swap tender on Monday and the Monetary Council's monthly rate-setting meeting on Tuesday. Of these, we would drop the Council meeting immediately, as raising interest rates or making verbal intervention other than a rather humble one could look too drastic compared to the super-loose and laissez-faire policy stance in which the MNB has positioned itself in recent months.So what remains is liquidity management through FX swaps. Next week, total maturity of swaps will be HUF55bn, so any sales of new swaps less than that would necessarily look like a tightening. Moreover, it is important to notice that according to the latest available daily data, banks had total HUF deposits with the MNB of HUF 950bn on January 22, which was sharply down from the super-excessive HUF 1668bn recorded at end-December. The new level, to which liquidity dropped essentially this week still reflects very loose regulation, as exactly ...