Forint slides more on interbank market

While the euro fared stable against the dollar as contradicting bets on the willingness of the European Central Bank (ECB) to enhance its quantitative easing any time soon practically blotted each other out ahead of ECBʼs Thursday policy meeting, the Hungarian currency fell against both, waving good-bye to its slightly better-than-310 to the euro level reached last week for the first time since May.

A possible inaction by the ECB is basically forint-negative. Although it may ease pressure on Hungaryʼs central bank to follow suite and resume cutting rates next year, the National Bank of Hungary (MNB) has already undercut the forint on Tuesday with its latest policy guidance which apparently lengthened the period of time, up to the second half of 2017 from the first half of 2017, in which no rate hike should be expected. The guidance followed its latest policy decision which left the record low base rate unchanged as expected.

On Wednesday, the deputy head of MNB repeated new threats to "force" banks into more lending by using cuts in the special bank levy as a means of arm-twisting, although gradual cuts had been promised unconditionally in a February memorandum of understanding with EBRD, and the first batch of the pledged tax reduction has already been enacted with next yearʼs budget, also with no strings attached.

Also on Wednesday second reading data showed Hungaryʼs cashflow-based general government deficit, excluding local councils, jumped 11.2% from a year ago, and reached 107% of the full-year target in January-September, after 103% in January-August.

Another factor against the forint could be a degree of more general caution towards CEE markets ahead of elections in Poland on Sunday with the opposition Law and Justice party (PiS) seen winning them. The party campaigns with economic and monetary policies reminiscent of the Hungarian governmentʼs unorthodox approach that harmed banksʼ profits and lending to the economy.

The forint traded at 274.78 to the dollar, down from 273.68 in final quotes on Tuesday. On Wednesday, it moved between 273.02 and 275.18, a twelve-day low, after a nearly two-month high at 268.96 last Thursday intraday.

It was quoted at 287.34 to the Swiss franc, down from 286.11 late Tuesday. Its range on Wednesday was 285.74 to 287.40, after a two-week low at 287.81 Tuesday intraday, and a nearly four-week high at 282.84 late last Tuesday. Since its crash to an all-time low at 378.49 to the franc 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.