Hungary central bank keeps 1-week deposit rate on hold, forint takes a hit
Just over two weeks ago, the Monetary Council announced that it was ending its cycle of interest rate hikes, which had lasted almost a year and a half, taking the base rate 10% higher. The decision to raise the base rate by 125 one last time came as a surprise, as the market had previously priced in a peak over 13%. Since then, the forint has weakened significantly against the euro, hitting 433 on Wednesday, but it seems the central bank has not changed its mind. Thursday's one-week deposit tender was announced at an unchanged interest rate of 13%.
The central bank appears to be continuing to tighten monetary conditions through absorbing liquidity, and several new tools have been introduced. Among them, the tender for the one-week discount bond will be held today.
In the past few days, more and more people thought that the MNB would soon have to back down due to the severe HUF depreciation. While the central bank has no exchange rate target, the almost unstoppable plunge of the forint observed over the past two weeks could threaten inflation targets, as the first positive signs of retreating inflation could be nipped in the bud.
The next policy meeting of the Monetary Council is scheduled for 25 October, but further rate hikes are unlikely in any case, as the MNB now seems quite committed to consider the rate hike cycle closed. Moreover, after the resolute wording of the official announcement a few weeks ago, it would be difficult for them to backtrack without a serious loss of credibility.
The forint has taken yet another hit after the MNB's announcement today, touching even the 434 mark versus the euro. Shortly after 9am it was quoted at 433.40, down 0.4% from yesterday's close. Against the USD the forint was quoted at 447.30.
Cover photo: Getty Images
