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FT: Hungary not likely to be hit hard by Fed rate hike

MNB

In light of its strong account surplus, substantial support from the European Union and use of a currency that trades with euros rather than dollars, Hungary is less likely to feel the impact of a possible raise in rates by the US Federal Reserve next week, though markets here could be indirectly affected by market volatility, according to analysts, The Financial Times reported yesterday.

The National Bank of Hungary (MNB) is now less exposed to external shocks following a decrease in the foreign ownership of public debt as well as being buffered by a current account surplus of  €8 bln, notes the FT article by Andrew Byrne. Analysts reportedly say the Fed’s decision could aid the central bank in reducing foreign ownership of government debt by making assets less attractive to prospective foreign investors.

“We have already seen a tangible fall-off in forint-denominated government debt owned by foreigners, which is seen by policymakers as a source of vulnerability. It is now at a three-year low and this is one goal of the debt management agency,” Zoltán Török, head of research at Raiffeisen Hungary is quoted as saying.

MNB’s remarkably loose monetary policy – its base rate was recently lowered to 1.35% – is designed to maintain liquidity while also weakening the forint, observers told the Financial Times. This strategy was put in place to support Hungary’s export sector and is not likely to be revised on account of the Fed, Peter Attard Montalto, senior emerging markets economist and strategist at Nomura reportedly said.

“Hungary is unlikely to be affected too much by the Fed moves, if anything, it may allow them to continue with the loose monetary policies they have been pursuing in recent years,” Montalto is quoted as saying. “We might find ourselves in the unusual position of having negative real rates while the Fed is hiking its base rate. This is all part of the plan to weaken the currency and support Hungary-based exporters.”

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