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Forint weaker on interbank market

MNB

The forint was trading at 3123.47 to the euro late Wednesday on the interbank forex market, down from final quotes at 311.92 on Tuesday. At 311.93 to the euro early Wednesday, the forint moved between 311.92 and 314.27, a four-day low, after a nearly eight-week high at 310.69 early Monday, and a six-day low at 316.53 late last Wednesday.

The stronger euro left the Hungarian currency behind, while the forint fell somewhat less against the dollar as well amid uncertainty around the US Fedʼs intentions. The Fed publishes its latest rate decision after market close on Wednesday. Most analysts expect it would leave the base rate unchanged but the next step in March is open to everyoneʼs guess.

A strong verbal intervention from the managing director of the National Bank of Hungary (MNB) was enough to moderate the forintʼs slide, but not to halt it.

"The situation has not changed from previous months with regard to the base rate. The Monetary Council still plans to keep the base rate steady for a sustained period," the managing director, Barnabas Virag, told a press conference on Wednesday.

But it is looking increasingly likely that Hungary will resume rate cuts after the countryʼs rate setters did not exclude that possibility in a rate statement Tuesday, OTP Bank said in a note on Wednesday. The monetary policy council said it "primarily" wants to use unconventional tools to ease monetary conditions if that were necessary to reach the inflation target. But if the European Central Bank embarks on more loosening in March, which looks increasingly likely, Hungary could cut its key rate, OTP said.

Hungaryʼs continued dovish monetary policy keeps Morgan Stanley from recommending outright long forint positions. It may do so if monetary policy becomes more neutral, perhaps after anticipated rate cuts in the second quarter, the house said in a note also on Wednesday.

Previously, on Tuesday, Hungaryʼs central bank left its record low base rate unchanged, but this did not support the forint, having been in line with unanimous market expectation. The bankʼs statement noticed the deterioration in global market sentiment but did not contain anything new in terms of domestic measures.

However, on Wednesday, the MNB unveiled a new macroprudential strategy against financial crises, which include measures to moderate credit and collateral growth.

Hungaryʼs government sold HUF 19 bln of bonds maturing in 2024 and 2025 for ones that expire in 2017 and 2018 at a switch auction on Wednesday, well under the HUF 40 bln plan.

Meanwhile, Hungarian sovereign yields continued to rise almost all over the curve in the secondary market on Wednesday in a race for risk premium as German and US yields also rose at a slower pace.

On Monday, Erste Bank said it expected the yields on Hungaryʼs local-currency and dollar-denominated bonds to rise The house expects yields of Hungarian forint-denominated bonds to rise gradually by end-2016 due to Erste forecasting more US Fed rate increases than markets currently price in.

The yield rise illustrates foreign investorsʼ discontent with yields deemed still too low compared to Hungaryʼs debt rating as well, and their reluctance could grow if Hungaryʼs central bank tries to cap yield rises by extending efforts to shepherd more funds of domestic banks into government paper, other analysts add.

The forint traded at 288.52 to the dollar, down from final quotes at 287.29 on Tuesday. On Wednesday, it moved between 287.15 and 289.05, after an eleven-day high at 286.53 late Tuesday, and a one-week low at 291.27 late last Thursday. On November 27, it fell to a third more than fifteen-year low within a month at 295.76.

The forint was quoted at 283.40 to the Swiss franc, down from 282.42 late Tuesday. Its range on Wednesday was 282.31 to 284.59, after an exactly eleven-month high at 281.92 Tuesday intraday, and a one-week low at 289.19 last week Wednesday intraday. Since its crash to an all-time low at 378.49 to the franc on January 15, 2015, when the Swiss central bank scrapped its cap of 1.20 to the euro, it reached the highest at 281.07 on February 26, 2015.

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