Hungary’s central bank would probably tolerate a HUF weakening up to 320-325 against the euro after recent government measures to ease the burden on households struggling with FX mortgage repayments, London-based emerging markets economists said on Tuesday.

In a research note on potential interventions by EM central banks, Timothy Ash, head of global emerging markets research at Royal Bank of Scotland said that the MNB’s willingness to defend the HUF with FX intervention “was always debatable” given the limited FX reserve stock.

However, Hungary’s central bank has already shown a willingness to resort to rate hikes in the face of FX weakness and concern over the impact thereof on household FX borrowers.

“Our sense is that given recent initiatives from the government to address the latter problem (including) an early redemption program, the MNB’s willingness to intervene with rate hikes has eased back”.

Indeed, “whereas previously we would have thought that the line in the sand was HUF295-300 against the euro, it is probably now nearer to HUF320-325, which suggests scope for the market to test the MNB’s resolve in bouts of risk-off momentum”, Ash said.

In a separate note released on Tuesday to investors in London, Capital Economics said it sees “some scope for defensive interest rate hikes” to strengthen the currency in the near term, despite downside risks to growth.

“Admittedly, this will be a measure of last resort”. But if the forint weakens above 310/euro, rate hikes are “likely”. However, “our base case remains for modest rate cuts next year”, based on a forint exchange rate of 290/euro, Capital Economics said.