Further disinflation is less and less likely, with EURHUF at 413-414 today

HUNGARY - In Brief 28 Nov 2024 by Istvan Racz

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Source: tradingeconomics.com Since September 26, the start of the latest downtrend of EUR against USD, the euro appreciated against HUF by 4.4%, and the dollar strengthened against HUF by 9%. So the forint did markedly worse than other CEE currencies, against which the EUR rose by 0.9% (PLN), 0.5% (CZK) and remained stable (RON) over the same two-month period. Beyond the possible technical reason, that there may have been more HUF positions to be liquidated in the hands of mainly USD-based investors than PLN, CZK, and RON assets, there are three types of factors that are likely to stand behind the forint's relatively poor showing: a. the upcoming change in the MNB's management;b. PM Orbán's long-standing conflict with the EU mainstream; c. all sorts of Trump-related uncertainties. As for the big macro picture, well known to the Reader, the BOP is fully balanced, fiscal adjustment is proceeding quite well (despite the domestic opposition and parts of the foreign media mixing up the poor performance of domestic public services with the performance of the government budget), disinflation has made really significant progress so far, but growth data looks quite poor and growth prospects are kind of questionable. So, regarding the MNB issue, the Bank is in an unfortunate trap currently. It keeps holding out spectacularly, despite pressure from growth data and the Fidesz government, but what they say and do has less and less relevance for the future, because of the early March expiration of governor Matolcsy's office term. In recent days, PM Orbán has made another comment on the subject, which, in spite of the cryptic language he used again, was taken as confirmation of finan...