The forint was never this weak historically

HUNGARY - In Brief 27 Jun 2018 by Istvan Racz

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The EURHUF went to 328.18 at one point in late trading today, which was a historic record in terms of forint weakness. Later it settled down between EURHUF 327.50-328, meaning it failed to recover by any significant amount within the day.All this can be traced back to some euro weakness against the dollar and was regional today, but of course, the MNB's super-relaxed stance, reinforced at the June rate-setting meeting, has made the Hungarian currency an ideal target whenever such things happen. This time around, the forint's weakening was not preceded by any significant capital flight: between June 15 and June 26, total bank deposits held et the MNB (sterilized and unsterilized together) remained completely unchanged at HUF1448bn, despite the fact that the stock of the MNB's liquidity generating FX swaps did not move at all either. In fact, the price of 3-month forint (BUBOR) rose to 0.26% from 0.15% over this period, with no evident contribution to that increase on the part of the MNB. There were no signs of any major selling of HUF bonds today, so the whole thing may have been mainly a currency market phenomenon.We suspect that one of the factors behind the most recent weakening of the forint may have been a change of analyst sentiment. We have seen new forecasts which expect EURHUF 330-340 in the forthcoming weeks, together with a view that the MNB may start to take HUF weakness serious only if it goes to EURHUF 340. Whether or not these views are nothing else but guesswork may be a good question, but at least the phenomenon shows that the MNB is starting to suffer from a credibility problem, this time around meaning that the MNB says the problem will simply go away...