Hungary cbank wants to see forint less volatile

Analysis

Hungary’s central bank would like to see less forint volatility as the currency’s firming trend continues, central bank Governor András Simor said on Monday.

This was the first time that Simor commented on a recent sharp appreciation of the forint boosted by Hungary’s high interest rates and speculation as the unit crossed several key resistance levels in recent weeks. Simor said the forint’s nominal appreciation was a natural trend as Hungary’s productivity growth exceeds that of the eurozone by a couple of percentage points.

However, he said the exchange rate’s appreciation might be sometimes faster than would be fundamentally justified. “The forint’s appreciation sometimes goes along with big movements, volatility, and the central bank would also like to see this (volatility) to be lower but we have no means to dampen this,” Simor told a news conference.

Some analysts said his comments could be interpreted as an attempt to slow the forint’s rise. Simor spoke at a news conference jointly held with Finance Minister János Veres, who said Hungary could apply for entry to the Exchange Rate Mechanism (ERM-2) in 2009 if the euro convergence program remains on track.

The forint has gained over 12% since hitting 266 versus the euro in March and on Monday at 1425 GMT traded at 231.80, close to all time highs of 230.15 to the euro hit in January 2003 according to Reuters data. “Though volatility and appreciation are not necessarily synonyms, in this context they are very close to each other hence one could take these words as a mild sort of verbal intervention against the forint,” said 4Cast analyst Gábor Ambrus.

Simor reiterated that the Monetary Council wanted to maintain tight monetary conditions. “We continuously monitor inflation trends and will make our (rate) decisions based on those,” Simor said. The central bank held rates at 8.5% at its June 23 policy-setting meeting after raising them by a cumulative 100 basis points at its three previous rate-setting meetings.

Simor and Veres spoke after the government had approved the first draft of Hungary’s technical euro changeover plan. Hungary has no official euro target date at the moment and the country meets none of the criteria of euro adoption. Simor said a euro target date can be discussed in 2009 at the earliest while analysts say the country is unlikely to adopt the euro earlier than in 2014. (Reuters)

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