Speculation on the weak forint may be over for now

HUNGARY - In Brief 05 Jul 2018 by Istvan Racz

---

With EURHUF falling back below 324 in the last three days, the latest wave of speculation on the weak forint seems to be largely over. It may be time to take stock, draw some lessons and to make some new guesses.First, it seems what ended the last two months' trend of HUF weakness was ended by a set of external conditions, including a positive conclusion of the German government crisis with some resulting boost to the euro, Chinese market intervention and its impact on emerging markets, and probably also that a number of investors playing on the weak forint may have reached their trading targets, most likely at EURHUF 330.Second, whoever did not know must have learnt on this occasion that the MNB is by no means a collection of super-nervous and hyperactive people. The MNB did hardly anything to solve the problem, except for stopping currency market intervention against the forint for the whole of June and early July, after selling in net FX swaps some HUF409bn against euros in May.Third, in terms of talk, the MNB remained consistent with its (lack of) action. They decided to sit out the problem, patiently waiting for the dust to settle, and for the country's sizable external financing surplus to put things in order. Indeed, substantially more forint weakness could have taken place only in case of a major loss of trust by the domestic forint holder crowd, or if speculative currency market players decided to take very big risks. Their recent statement that to maintain the current loose monetary conditions for the whole of the next eight quarters will not be possible only meant that now they see a need for tightening between mid-2019 and mid-2020, and thus it gave no guid...