Analyst: Hungary could cut base rate to 0%, cap forintʼs value

History

Hungaryʼs central bank could cut the base lending rate to zero, and may be preparing to introduce a cap on the forint this year to keep the local currency from rising too much in value against the euro, according to a “money manager who outperformed more than 90% of his peers”, Bloomberg reports this morning.

Viktor Zsiday of the Citadella Derivative Fund at Concorde Asset Management in Budapest said putting a cap on the value of the forint might be one policy option for the Hungarian National Bank (MNB) if it cuts the base lending rate to zero and does not achieve the desired results.

“Reaching the zero rate this year will only be enough to keep the forint in the 300-315 per euro range ... at that point, they will need to consider their options and may opt to introduce a currency cap,” Zsiday said according to the article by Bloomberg.

The Hungarian forint was remarkably strong in Q1, peaking at 307 to the euro, causing concerns of a deflationary cycle that could see domestic prices fall while the cost of Hungarian exports to the Eurozone rises, Bloomberg reported.

The MNB has said they do not have a target for the exchange rate, but they have been cutting the base rate to spur inflation. Hungary’s main goal is “to keep the forint weakening in order to keep booking a profit on foreign-currency reserves,” Bloomberg quoted Zsiday as saying.

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