New forint weakness record at EURHUF 337.24 this morning

HUNGARY - In Brief 26 Nov 2019 by Istvan Racz
The forint was never as weak against the euro as this morning. Despite some inching back to 336.5, which was today's fixing, it is now 2% down against the euro since the start of the month, and that appears as a clear case of underperformance within the region. There does not seem to be any external or fundamental domestic news to explain this latter trend, except for the MNB's unchanged heavy loosening bias. They did not react in any way to the worse-than-expected October inflation data at the late-November Monetary Council meeting, and they keep intervening against the forint, by selling FX swaps and replenishing lost banking sector liquidity, from time to time. Right now they are at HUF 2274bn in terms of total outstanding FX swaps, up by HUF 100bn so far this month.It was not long ago that we wrote a little note about the forint, saying that it returned to the EURHUF 330-335 trading range after the November Council meeting, which kind of reinforced that range without any need for MNB action. But now, there seems a real breakout attempt to be going on, and the MNB should say or do something if they do not want to leave the market with the impression that they (the MNB) are either truly uninterested in the exchange rate (which would be a negative sign as regards their credibility) or they are perfectly happy with the trading range shifting to EURHUF 335-340. The latter would carry the risk of CPI-inflation potentially breaking through the 4% tolerance limit temporarily around January. But even so, somehow we see less than 50% chance for the MNB to act in any way prior to the next rate-setting meeting on December 17.By the way, the most significant data point lately h...

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