Forint slightly up on interbank market

MNB

The forint was trading at 305.61 to the euro late Monday on the interbank forex market, slightly up from 306.02 late Friday and 305.65 late Sunday. At 305.76 to the euro early Monday, the forint moved between 305.12 and 305.96. On Friday intraday it reached a three-and-a-half-month high at 304.59.

The Hungarian currency sailed to a further improvement between the waves of fast changing expectations for US and Hungarian rate policy.

A mix of entrenched expectations for an early Fed hike next year and a falling Hungarian policy rate would be detrimental to the forint because it would narrow the premium on forint assets.

But the minutes of the latest Fed policy meeting suggested that decision makers in Washington could be comfortable with the present, record low, Fed policy rate longer than most analysts thought until last week.

Meanwhile, in Hungary, a surprisingly large deflation figure for September, published on Friday, initially raised the prospect for the National Bank of Hungary (MNB) to start shaving rates again, especially after the Polish central bank cut its main policy rate last week by 50bps to 2%, which is lower than that of the MNB at 2.1%.

However, the Hungarian economy is expected to grow faster than seen in earlier forecasts -- as opposed to downwardly adjusted forecasts for Poland -- making a rate competition with Poland unnecessary.

And MNB's deputy governor, Ádám Balog, also hurried to play down September data on Monday, saying that what matters instead is the much smaller third quarter deflation, and that confirms that it may be necessary to keep the base rate at the current level until the end of 2015.

The forint has been buoyed recently by comments from the government and the central bank which suggested that they want a stronger forint by the year-end to cut state debt from 2013. Increased market confidence for the Fed to stay put longer than previously thought, reflected on Monday by the dollar's fall against other main currencies, and no rate cuts in Hungary, could help achieve this goal.

The forint traded at 240.97 to the dollar, up from 242.33 late Friday and 241.82 late Sunday. On Monday, it moved between 240.46 and 241.98.

It was quoted at 253.03 to the Swiss franc, slightly down from 252.78 late Friday and 252.87 late Sunday. Its range on Monday was 252.35 to 253.32.

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