The MNB turned the strengthening forint back from EURHUF 302 this morning

HUNGARY - In Brief 24 Aug 2017 by Istvan Racz

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Well, we told you so. We have warned our readers repeatedly in recent reports that:- given the industrial recovery in the Euro Area and improving producer prices paid to domestic manufacturers, the MNB was likely to welcome some forint appreciation from the previous EURHUF 310-315 levels;- but any resulting forint appreciation could move only within tight limits, because of the MNB's strong political mandate to protect and support economic growth;- and so any forint exchange rate stronger than EURHUF 305 would be risky, because of a possible MNB action based on considerations driven by fundamentals (= real sector realities).Apparently, our view has not made it to becoming mainstream on the market, as a number of investors were speculating on the MNB becoming more friendly to an even stronger forint, in response to mounting domestic inflationary pressures that were (and still are) indeed there. As a result, by recent days, the stake had been raised even to the forint gaining strength to break through the EURHUF 300 line, which the authorities clearly could not afford, since such a strong forint could easily crush merchandise exports and break the backbone of domestic SME-size manufacturers. Unfortunately, yesterday's MNB communiqué may have been misunderstood somewhat, possibly for the lack of any explicit verbal intervention against the forint, so the strong forint trend continued into this morning. But then, responding to a question from Reuters', the MNB spoke again, stressing that it indeed continues to look at how to loosen monetary conditions, rather than tolerating a tightening of the latter. It seems the market at last took this as a forceful verbal intervention...