Forint weakening continues, the MNB spoke again today

HUNGARY - In Brief 04 Mar 2022 by Istvan Racz

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Life has quickly stepped over our wish that yesterday's interest rate hike by the MNB should stabilise the EURHUF exchange rate for more than one afternoon. The forint fell to EURHUF 386-387 today, before correcting back slightly, by just one unit, when the MNB stepped in with a verbal intervention, the second of this sort within the last few days.Compared to the message of its previous verbal intervention on March 1, the MNB did not say anything particularly new today. Indeed, its statement was provoked by questions asked by Reuters, rather than going public on the Bank's own initiative. Essentially, the Bank repeated its previous formula that it is prepared to secure the stability of local financial markets by using any element of its kit of policy instruments. At the same time, the Bank stated that it does not comment on questions related to specific FX market interventions, hinting that currency market intervention are not excluded as a possibility.So far, the forint has fallen by 8% in EURHUF terms since the start of the war. This is the sharpest fall in the region, although PLN also fell 6% against the euro, and CZK has been prevented from sharper depreciation only by currency interventions. So the phenomenon is regional, and the cause is, no doubt, the war itself. But in Hungary's case, a relatively high exposure to energy imports, OTP's presence in Russia & Ukraine, relatively high indebtedness and the coincidence of the war with heavily pro-cyclical fiscal policy are all additional negative factors. None of these additional factors appear dramatically serious, but together with the war they certainly matter.As a next step, the MNB may raise the sterilisation r...