Initially gaining on expectations for an outlook upgrade on Hungaryʼs junk rating by S&P later in the day, and sovereign prices rising on the secondary market in line with other low-rated government debt in the wake of the Fedʼs postponing bias manifest in its Wednesday statement, and pressure from the dollar easing, the Hungarian currency sank back later in the day as quasi-certainty in a base rate cut next week was boosted.
The National Bank of Hungary (MNB) is “quite likely” to lower its main interest rate next Tuesday, central bank director Marton Nagy, who is not a rate setter, told a conference in Budapest on Friday.
Morgan Stanley expects Hungaryʼs central bank to revise its inflation forecast sharply, down to around minus 0.2% on the year in 2015 and to 2.5% in 2016 from 0.9% and 2.9%, respectively.
The central bank will publish the key forecasts of its quarterly Inflation Report next Tuesday, where it will also update its economic growth forecast for this year and the next.
Morgan Stanley said in a note on Friday the only question was how fast the central bank will cut rates. The house expects a 10 bps cut to 2% on Tuesday, adding that a dovish Fed has delayed the “day of reckoning” and created a favorable environment for dovish policy in the near term, which would enable a larger cut in Hungary.
The forint traded at 282.25 to the dollar, up from 284.71 in final trades on Thursday. On Friday, it moved between 280.90 and 284.68. It fell into a new 13-year trough at 292.39 last Friday intraday.
It was quoted at 288.94 to the Swiss franc, down from 287.63 late Thursday. Its range on Friday was 286.72 after an eight-day high at 283.73 Thursday intraday, to 289.85, a five-day low. 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.
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