Economic Analysis - HUF: MNB Intervention To Maintain HUF Weakness - DEC 2017

BMI View: Given the Hungarian National Bank (MNB) ' s persistently dovish stance and desire to weaken the forint (HUF), we see little chance of the currency reversing its recent depreciation in the short term. While our forecasts are weaker-than-consensus over the long term, strong macro fundamentals and a gradual normalisation of monetary policy from end-2018 will support the unit.

Short-Term Outlook (three-to-six months)

We have revised weaker our end-2017 forint forecast to HUF315.0/EUR, up from HUF310/EUR previously, reflecting our expectation for the Hungarian National Bank (MNB)'s ultra-loose monetary policy and dovish forward guidance to drive down the value of the currency ( see ' MNB Easing Heightens Inflation Risks ' , September 26). Against a backdrop of mounting core inflationary pressures, unconventional easing measures from the MNB have pushed short-term real interest rates deeply negative while also flattening the yield curve. This comes just as the European Central Bank (ECB) is likely to announce a tapering of its bond purchasing programme in October and other Central and Eastern European (CEE) central banks are turning more hawkish. We see further short-term weakness for HUF, with strong multi-year technical support coming in at HUF320.0/EUR.

MNB Targeting HUF Weakening
Exchange Rate, HUF/EUR (Monthly)
Source: Bloomberg, BMI

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