EURHUF at record high today

HUNGARY - In Brief 13 Jun 2022 by Istvan Racz

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The forint weakened to EURHUF 402, a historic record, today, before settling down at a bit stronger level but still north of the 400 line. Immediately it was about the global stockmarket selldown and the strong dollar, fundamentally it was about everything from the war impact to rising inflation, the deterioration of the BOP and the two sharp conflicts between the government and the EU - the rule-of-law procedure and the oil embargo. But very importantly, this weak trend of the forint will not be broken, in our view, until the MNB gives some credible indication that it seriously cares about the control of the exchange rate, rather than mechanically limiting the regular monthly base rate and sterilisation rate hikes to a preset standard amount, and scaling back its reference to pretty vague on the possibility of flexible and forceful reaction if 'market conditions'  require (read = the currency is in trouble). We mention this because the Bank's communication has been exactly like the latter over the past two months. In addition, the government should stop saying things like: 'the forint's exchange rate is at the right level, where it is, as it is determined by the market' (quote Márton Nagy, MNB ex-vice governor and the government's new minister for economic development). Or the forint will continue its current, relatively rapid slide vis-a-vis the euro, until some lasting major improvement takes place in fundamentals or market conditions.