Forint stable to euro on interbank market

The Hungarian currency stayed balanced versus the euro, while dollar pressure eased further, as traders said a surprise upgrade in Hungaryʼs credit rating by S&P on Friday could open the way for a bigger than expected interest rate cut by the National Bank of Hungary (MNB) on Tuesday.

In a Reuters poll of analysts early last week, forecasts were almost equally split between a 10 and a 20 basis points cut, but a poll on Monday by the Wall Street Journal showed a majority for a 20bps cut. Raiffeisen analysts said they expected an even heftier, 30bps, reduction to 1.80%. 

The Hungarian forint that is too strong, inflation that is persistently too low, and expectations that the Fed will start to increase rates later and slower than originally thought, all point to steeper cuts, the analysts said. The Hungarian central bank is also set to publish its latest inflation forecasts on Tuesday, revising its calls downwards, they added.

A rare sceptic, Rabobank said Hungaryʼs central bank could wait for a few months before cutting rates, to see the impact of additional stimulus provided via its Funding for Growth Schemes. But Rabobank also added in a note on Monday that rate setters are keen to slow the forintʼs firming versus the euro, so cuts could come sooner. Allowing the forint to strengthen significantly would dent the export outlook.

Bank of America Merrill Lynch forecasts that Hungaryʼs budget deficit will narrow this year to 2.1% of GDP, well below last yearʼs expected 2.6%, and the 2.4% agreed with the
European Commission, further below the EU tolerance threshold of 3%. "A well-functioning mechanism is in place to maintain prudent fiscal policy" and, as a result, the central bank "is
expected to do whatever it takes to deliver its target of 3% inflation," BofAML said in a note on Monday.

The forint traded at 277.48 to the dollar, up from 280.26 in final trades on Friday and 280.23 on Sunday. On Monday, it moved between 276.98, a five-day high, 282.49. It fell into a new 13-year trough at 292.39 on March 13.

It was quoted at 287.26 to the Swiss franc, up from 288.84 late Friday, but down from 286.64 late Sunday. Its range on Monday was 286.53 to 288.91. 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.