FinMin: Hungary forint firmed too much, too fast

Veres also told Reuters in an interview that he saw no reason for Hungary’s interest rates, which stand at 8.5%, to rise any further. The forint firmed to record highs past 230 versus the euro last week along with the Polish zloty and the Czech koruna, boosted by high rates and after the forint had breached several key resistance levels following the abolition of its trading band in February.

Veres said the abolition of the forint’s band was a credibility issue for the central bank as it boosted the bank’s room for maneuver in monetary policy. “However, the present strong exchange rate is disadvantageous for too many Hungarian firms,” Veres said. “The question is whether there is any reason for anybody to expect a rising interest rate under the present circumstances ... I don’t know any such reason today,” he added.

Veres said the central bank and the government have started discussions about the country’s 3% medium-term inflation target which is due for review in August. He said talks are in an early stage but Hungary cannot take the road which Turkey did when it revised its inflation targets upwards last month. “We looked at the experiences of other countries and there is a warning example among them ... Turkey,” Veres said. “That’s not the way to go.” (Reuters)