The Hungarian currency outperformed the euro which struggled up from a three-month low against the dollar on Tuesday, after the National Bank of Hungary (MNB) cut its base rate more than expected to a new record low, but the bankʼs head announced an end to the latest five-month easing cycle with a “hold” guidance “for a long time to come”, based on the assumption of loose monetary conditions to continue in the US for a long period of time.
At a regular auction earlier on Tuesday, the yield of the three-month Hungarian Treasury bill edged up, signaling the timeliness for the central bank to stop easing.
Hungary may want to end its easing cycle to make sure real–or inflation-adjusted–interest rates will not turn even more negative as inflation is set to accelerate, Commerzbank said in a note on Tuesday. Until last week, it was unclear whether Hungaryʼs central bank would cut its benchmark interest rate this month at all–a disorderly Greek outcome would have put pressure on the forint, Commerzbank added. “But the risk-on market move underway now makes this a non-issue,” it said.
Morgan Stanley sticks with its overweight stance on Hungarian local-currency government bonds. In the wake of a recent oil price fall, the Hungarian central bank could shift to a “persistent low-cost environment” scenario, should oil prices stay at the current low level throughout this year. In that case, the central bank could revise downward its inflation forecast for over the next two years, meaning it will not reach its 3% CPI target by early 2017. As a result, Hungary could hold the interest rate at a low level for a longer period which would be supportive for local rates, a note from Morgan Stanley said.
The forint traded at 281.68 to the dollar, up from 286.34 late Monday. On Tuesday, it moved between 281.36, a one-week high, and 286.68 in the morning, after a ten-day low at 286.91 Monday intraday.
It was quoted at 293.98 to the Swiss franc, up from 296.93 late Monday. Its range on Tuesday was 293.98, a two-month high, to 297.32. 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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