Does MNB have a need to intervene? – Commerzbank

In a recent column, we addressed the question of recent sharp depreciation of the Hungarian forint exchange rate, asking if the central bank (MNB) might have to intervene as an emergency. The Hungarian forint’s depreciation is accelerating, even versus a weak euro; and the underperformance versus eastern European peers is widening further (the PLN/HUF cross, for example, is continuously rising), Commerzbank’s FX analyst Tatha Ghose notes.

Weak euro environment is bad for high-beta FX in the region

“There is not much to add fundamentally at this point. A weak euro environment is bad for high-beta FX in the region – the forint tops the list of vulnerable currencies. Idiosyncratically, it does not help that the country’s leader Viktor Orban has been in the media a lot recently with his high-profile geo-political meetings, which are connected with the very issue hitting the euro – the regional security situation – and his stance is deviant from the central EU position.”

“Nevertheless, from our perspective, the central bank’s possible reaction function is of interest. MNB has paused cutting rates and switched to more hawkish language. This is not proving enough. We already wrote in our last piece that when we say ‘intervention’, we do not mean direct FX intervention. In fact, we find the question of whether or not MNB might intervene in the FX market not very interesting – because such things usually do not have large or lasting impact.”

“What we mean by intervention is whether at some point MNB might have to come out and hike rates back. We think that a level such as 420.0 or 425.0 in EUR/HUF might well force the CB’s hand in this regard. This is why we are watching closely.”