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Forint gains on interbank market

MNB

The forint was trading at 298.83 to the euro late Wednesday on the interbank forex market, up from 200.43 late Tuesday. At 300.49 to the euro early Wednesday, the forint moved between 297.69, not far from a 13-month high at 297.25 last Wednesday intraday, and 300.85.

Riding the wave of outstanding figures out Wednesday on robust manufacturing expansion in Hungary that should boost exports, on rising foreign trade surplus that should improve the current account further, and on public deficit falling way behind the government target last year, the Hungarian currency strengthened again under 300 to the euro, free from pressure from the dollar which eased in euro terms on Wednesday after good euro zone PMI data.

Strong external balances, incoming EU funds, and expectations for an upgrade to investment level of Hungaryʼs public debt later in the year or early next year support the forint. This, together with continuing disinflation, however, fuel expectations for further monetary easing.

Hungaryʼs central bank is likely not happy with the current strength of the Hungarian currency and will cut rates until the forint weakens, Royal Bank of Scotland said in a note on Wednesday. It sees another 15 bps rate cut coming in April to the 1.95% policy rate. Expects rate cuts to take the main rate to 1.50% in the coming months and sees a "strong possibility" of an even lower rate. Cutting to below 1.50% from June onwards will depend on oil price developments and forint levels, RBS added. It expects the forint to weaken against the dollar and return to 310-315 against the euro over the months ahead.

The move below 300 to the euro will not necessarily promote Hungarian central bank intervention in the currency market or aggressive rate cuts, but provides elbow room for the

central bank to cut its policy rate deeper eventually than the 1.50% bottom currently predicted by most economists, Nomura also said. Such a strong forint could mean a slightly higher probability that the central bank will cut interest rates in 20 bps clips, more than the last 15 bps cut, the house added.

Balancing these expectations is, however, the risk that the Fed may start to lift its interest rates in June to September period which could limit the room of manoeuvre for the National Bank of Hungary (MNB).

The forint traded at 277.42 to the dollar, up from 279.96 late Tuesday. On Wednesday, it moved between 275.87 and 279.91 after a ten-day low at 280.49 Tuesday intraday. It hit a one-month high at 270.52 last Thursday intraday.

It was quoted at 286.97 to the Swiss franc, up from 287.89 late Tuesday. Its range on Wednesday was 285.58 to 288.24 after a one-week low at 288.51 Tuesday intraday, and after an almost three-week high at 282.68 last Thursday intraday. 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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