Forint eases on ʼPolish contagionʼ

MNB

The forint was trading at 317.71 to the euro late Wednesday on the interbank forex market, down from 316.91 late Tuesday.

At 317.23 to the euro early Wednesday, the forint moved between 316.51 and 318.08, after a fifth more than five-month low within a week at 318.32 Tuesday evening.

While the Greek crisis has again been "postponed" until Sunday, now the Polish zloty sent ripples around the regionʼs currencies markets after the ruling party there proposed converting Swiss franc loans partly at the cost of Polish banks, imitating the Hungarian method exercised earlier this year. A Polish central bank rate decision also on Wednesday to stay put could not stem the slide.

Emerging market contagion anxiety also weighed in view of an apparently unstoppable stock market rout in China.

Longer than six-month Hungarian sovereign yields all increased on the secondary market while those on euro zone periphery government paper fell, a sign that while Greek contagion fears receded, emerging market assets are nevertheless vulnerable.

A mix of fresh data out Wednesday on Hungaryʼs inflation accelerating in June and a re-confirmation of the Hungarian central bankʼs continuing easing bias, albeit "slight", also took its toll on the forint.

It is not Hungaryʼs accelerating inflation but rather deteriorating investor sentiment in that will bring an end to the Hungarian central bankʼs interest rate cuts, Erste Bank said in a note on Wednesday. Should euro/forint continue to climb toward 320 and remain stuck somewhere there, Hungaryʼs central bankers may end their rate-cutting as early as this month, Erste said. Still,

Erste sees the end of the easing cycle at an 1.2% base rate by September versus the current, record low 1.5%

policy rate. After that, Hungarian interest rates are slated to remain unchanged until the fourth quarter of next year, it added.

However, after initial losses the forint was resilient versus the dollar and the Swiss franc with the help of the euro which gained back some of its losses in the last few days.

The forint traded at 287.13 to the dollar, up from 288.18 late Tuesday. On Wednesday, it moved between 286.81 and 289.11, after a second nearly four-month low within three days at 290.57 Tuesday intraday.

It was quoted at 302.29 to the Swiss franc, up from 304.34 late Tuesday. Its range on Wednesday was 302.09 to 305.44, after a more than five-month low at 306.16 late Sunday. 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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