The MNB took action to stabilise the forint this morning

HUNGARY - In Brief 14 Oct 2022 by Istvan Racz
The Monetary Council announced early this morning a series of actions, with a view to stabilising the forint after a 6% slide against the euro since the Council's previous communications on September 27. The following measures were announced, with immediate effect: - The Bank's O/N credit rate was raised by 950 bps, to 25%, and the 1-week credit facility was suspended.- Starting today, the MNB will do one-day (T/N) reverse FX swap (HUF to EUR) and O/N HUF deposit tenders with a daily frequency, at elevated interest rates.- In the forthcoming months, the MNB will be selling EUR for HUF directly (off-market) to domestic importers of energy, to satisfy the unusually big EUR cash needs of energy imports. The MNB will continuously assess market developments and is prepared to maintain these measures as long as they are required for securing market stability. Soon after this announcement, vice governor Virág held an online press conference, to explain the measures. In essence, he said the following: - The FX market trend (the forint's weakening) is seen as a threat to the medium-term inflation outlook. Price stability cannot be achieved without market stability.- The forint weakened on the deficit of the current account and on the building up of speculative positions against the forint.- The development of the energy trade balance is insensitive to interest rates, but speculative (short) positions are interest-sensitive: this had an implication of the Bank's measures.- The current account deficit is fully stemming from the existing large deficit of energy trade. Excluding net energy imports, the current account is in surplus, and this surplus is going to grow further, as the...

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