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bne July 2018 Companies & Markets I 19
bne:FX
Hungarian forint hits a three-year low against euro after ECB meeting
bne IntelliNews
The forint traded at 323.3 versus the euro on June 14, its weakest level in three years. It slipped roughly 1% after a widely anticipated European Central Bank meeting, where policymakers unveiled a hawkish timetable for winding up monetary stimulus programmes, which has put pressure on emerging market currencies, with the forint hit the hardest in the region.
The forint's loss versus the dollar was even steeper as it weak- ened 2.2%, trading at 279 from 272 before the ECB meeting. The ECB said that asset purchases will be reduced from the current average of €30bn per month to €15bn per month after September and discontinued at the end of the year. The hawk- ish comments intensified the selling pressure on the forint, which also weakened nearly 1% against the Czech koruna and the Polish zloty over the past three days.
The euro-forint pair closed last week at 317, retreating from 320 after both the finance minister and the prime minister called for tight fiscal policy in light of a potentially less benign external environment. The first reports on the 2019 budget draft on the 50% increase of reserves were also taken posi- tively by the financial markets.
The currency pair started the week in the middle of June tighter as inflation surprised to the upside, up from 2.3% to 2.8% in May, driven mainly by the temporary rise in fuel prices. Analysts' comments suggested that the data may not provoke any monetary responses from the Magyar Nemzeti Bank (MNB) yet.
Recent comments by a MNB deputy governor highlighted the central bank's willingness to change its monetary policy stance in case inflation continues to rise.
Monetary council member Gyula Plesichnger a day later said he saw no reason now for the central bank to change its easing bias as the current monetary policy is in line with inflationary goals. The dovish comments sent the forint again above the 320 mark against the euro.
Societe Generale has revised its outlook on the currency pair,
as it now expects it by mid-2019 to breach an all-time high of 327 struck in January 2015 at 333.
After presenting the budget draft on Wednesday, Finance Min- ister Mihaly Varga said the forint's exchange rate is expected to stabilise when markets calm down.
Many analysts see the rise in yields and the forint's weakness with the broader disapproval by the markets of the country’s procyclical policy mix, that is loose fiscal policy coupled with loose monetary policy. So far the MNB has remained com- mitted to keeping the base rate unchanged as long as 2020. Analysts will closely watch Tuesday's rate-setting meeting and comments from the MNB.
More pressure on Hungarian bonds
Hungarian bond yields continued to edge higher as risk aver- sion returned to the market. A sign of this was the very light demand at the June auction for the 12-month T-bill, as the Government Debt Management Agency (AKK) sold HUF15bn (€46.7mn) of the instrument, the lowest volume in a long time, reducing its original offer by HUF25bn after receiving just HUF27bn in bids.
“Hungarian bond yields continued to edge higher as risk aversion returned to the market”
Yields of the three-, the five- and ten-year bonds all moved up significantly. The three-year HGB was fixed at 1.54%, up 12bps from the previous day, the five-year paper was trading at 2.05%, an increase of 6bps and yields of the 10-year bonds was 3.52%, up from 3.45% in the previous day.
Hungarian stocks fared better as the benchmark BUX index finished the session up 2.2% to 36,654, led by the 4.1% rally by banking stock OTP and the 2.7% rise in the shares of oil company MOL.
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