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Analysis: solid monetary outlook for 2017, albeit with built-in risks

The Hungarian currency is expected to do well in 2017, but risks still lie ahead which might make the projected strength fragile, according to an analysis by Akcenta CZ, a foreign exchange dealing and clearing services firm based in the Czech Republic.

The volatility of the forint against the euro remained relatively low during the first week of the new year, mainly moving in the 307.5-309.6 HUF/EUR range. Things were, however, trickier in terms of the dollar during the same period. The forint weakened all the way to 298.2 HUF/USD, although it had crawled back to the 291.0 level by January 5.

With the year just getting started, analysts are grabbing the opportunity to draw overall conclusions about 2016 and set these against what might lie ahead in the coming year. Accordingly, Akcenta CZ, which describes itself as the largest non-bank financial institution in the CEE region, points out that 2016 was rather a period of waiting, with markets tuned to witness the outcome of the elections in the United States and particularly curious to find out what interest rate policy the Fed would pursue. Another hot issue was whether the European Central Bank would continue to bail out troubled euro area states.

In 2017, a lot more focus will be directed to riskier assets and the emerging market countries compared to last year, according to Akcenta. Hungary should be looking forward to improved times as well, since its credit rating was restored by all the major credit rating agencies in 2016, and so government bonds are now classified as “recommended for investment.”

“We are expecting that 2017 should be favorable for the forint due to moderate economic growth, the continuing high trade surplus and increasing demand for Hungarian assets,” Akcenta CZ says in its analysis. “We believe that the HUF/EUR exchange rate should be stronger than its current level by mid-2017, probably around 306.”

The coming months will certainly not be risk free, though. Certain events, including measures the Hungarian government might take, may scare foreign investors away and cause capital to flee. A further risk factor may be the deterioration of the stability of the European economies, the analysis notes.

Akcenta CZ also suggests that the monetary policy easing of the National Bank of Hungary (MNB) will likely remain unchanged in 2017, and the base interest rate will be modified only if some unexpected negative event occurs. The MNB will probably continue to apply unorthodox monetary tools in order to further ease monetary policy and is expected to further restrict the use of three-month deposits for commercial banks, says Akcenta.