Finance minister Varga appeared quite relaxed about the weak forint

HUNGARY - In Brief 08 Jun 2018 by Istvan Racz

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Mr. Mihály Varga, who once again bears the title of finance minister (pretty much a different name for the economy minister only) spoke in a rather relaxed mood about the weak forint today, despite the May jump in CPI-inflation (to 2.8% yoy from 2.3% in April), which obviously had a lot to do with the exchange rate (see our related in-brief two days ago). He said the government has no exchange rate target, and therefore it is not worried about the forint's recent weakening. He added that exporters "will surely not cry" because of the weaker forint, and continued: "So far there is no reason to worry, the exchange rate is within the range which we regard as fundamentally market-based and an equilibrium rate." And than he said that FED rate hikes affect emerging markets, and so "we need to reduce our vulnerability". And there are already signs that the forint is stabilizing.Our best translation of all this is that the government does not want to put any pressure on the MNB, including potentially cornering it by setting expectations and requirements. The MNB will surely have to find its answers shortly (June 19: rate-setting meeting and inflation report), regarding its inflation outlook, medium-term GDP forecast and the policies to be followed of course, but it may be best if the government leaves it up to the Bank publicly, and speak to it on these subjects behind close doors only.By the way, we do not expect the MNB to do any obvious tightening until its 2-4% tolerance range for CPI-inflation comes under threat, which is unlikely to happen in the immediate future. Playing around with the "fine-tuning" FX swap instrument is a different matter, of course.