Forint slightly up on rate policy

Analysis

The forint was trading at 308.49 to the euro late Tuesday on the interbank forex market, up from 309.21 late Monday. At 309.41 to the euro early Tuesday, the forint moved between 308.49 and 309.55.

While investors were reluctant to buy Hungarian sovereigns for a second week as the regular Tuesday auction of three-month bills showed, the National Bank of Hungary's (MNB) decision to keep its policy rate unchanged, and a repetition of its guidance to maintain the "current loose monetary conditions for an extended period," suggesting no rate moves in the foreseeable future, underpinned the Hungarian currency.

The decision was in line with broad market consensus, although some analysts have penciled in a rate cut in view of slowing economic performance and deepening deflation. Analysts expecting a cut have now postponed their forecast for early next year.

The effect of the poor auction showing was also mitigated by a widening of the risk premium of Hungarian sovereigns to US treasuries at the short end of the curve, while premium narrowed at the long end, on the secondary market on Tuesday as analysts now expect the US Fed's rate hike to come in Q4 next year instead of Q3 next year as previously thought.

EUR/HUF should meet resistance at 310, Morgan Stanley said in a note on Tuesday.

The forint traded at 242.02 to the dollar, up from 243.50 late Monday. On Tuesday, it moved between 241.98, a six-day high, and 243.88. It was quoted at 255.77 to the Swiss franc, up from 256.45 late Monday. Its range on Tuesday was 255.77 to 256.67.

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