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MNB to deploy entire arsenal to fight excessive forint

The Hungarian Central Bank (MNB) will encourage an increased use of recently introduced forint- and foreign-currency liquidity instruments, begin to sell EU resources on the market and is prepared to employ the full range of monetary tools at disposal in an effort to bring financial market processes back in accord with the outlook of the real economy, the MNB said in a statement evening.

The MNB said the accelerating rate of the forint's weakening over recent weeks to be the result of expectations that have diverged from the Hungarian currency's fundamentals.

The MNB said that a sustained weakening of the forint could place Hungary's economic outlook and inflation target in jeopardy, directly through import prices and indirectly through expectations and various other indirect channels.

The MNB Monetary Council (MPC) held extraordinary meetings on March 6 and 8 to discuss the latest money and capital market developments.

The statement noted that data over recent months suggests that the domestic income owners have begun to adjust to the changed global financial environment. The external funding requirement of the Hungarian economy is expected to drop rapidly with the combination of rising savings, tight fiscal policy and improving external balances, the MPC said.

The significant credit lines available from international financial institutions, adequate level of central bank foreign exchange reserves and continuous funding from foreign parent banks to domestic bank units all reduce Hungary’s dependence on borrowing in international capital markets.

The Council is of the view that Hungary's banking sector is stable despite the forint's recent sharp weakening, though the Hungarian currency's devaluation could exercise a negative impact on the capital circumstances of the financial-intermediary system in the medium term. (MTI – Econews)