Forint stalls on central bank guidance

Analysis

The forint was trading at 310.50 to the euro late Tuesday on the interbank forex market, slightly up from 310.75 late Monday. At 311.00 to the euro early Tuesday, the forint moved between 308.77, a nearly three-week high in the morning, and 311.19, after a nine-day low at 314.03 last Friday intraday.

Despite a stronger dollar, the Hungarian currency still rode renewed optimism about a deal for Greece until early afternoon, when the National Bank of Hungaryʼs (MNB) cut its base rate the third time in as many months.

The rate cut was in line with market consensus, but the forint stalled after the MNBʼs statement, slightly less straightforward than its previous guidance in May but still pointing to the continuation of the easing cycle, confounded majority opinion that the central bank would now stop in view of on-going concerns over Greece, rising inflation in Hungary, and the possible Fed rate hike later in the year.

The benchmark rate in Hungary is now level with that in Poland, which is in investment grade, while Hungary is still rated junk by all three main rating agencies. Analysts add that this could make Hungary particularly vulnerable if investors become more selective about emerging market assets, even though markets are already pricing in an upgrade of Hungary on its improved debt outlook.

Tuesdayʼs sale of the planned amount of three-month Treasury bills with narrowing bid-to-cover ratio but falling yields helped underpin the forint.

The forint traded at 277.58 to the dollar, down from 274.00 late Monday. On Tuesday, it moved between 273.95 and 279.10, an eight-day low, after a four-day high at 272.20 Monday intraday.

It was quoted at 297.20 to the Swiss franc, a hair up from 297.38 late Monday. Its range on Tuesday was 295.60, a ten-day high, to 297.89. Since its crash to an all-time low at 378.49 on January 15 when the Swiss central bank scrapped its cap of 1.20 to the euro, it reached the highest at 281.07 on February 26.

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