Hungarian currency continues to set highs against euro and dollar. The forint continued its remarkable rise against the dollar and the euro, reaching a several-year high of 143.80 against the American currency in the early New York session on Monday (July 21).That followed a decision – widely predicted by the markets – by the Magyar Nemzeti Bank (National Bank of Hungary or MNB) to hold the interest rate at 8.5%.
The forint had closed trading on Friday (July 18) at 144.19 to the dollar (although ahead of the bank decision it had weakened slightly), and had also broken a 10-year high against the euro to trade at Ft228.
As The Budapest Sun went to press on Tuesday (July 22), the forint had opened trading on the morning’s interbank market slightly down at around 228.70.
This was the second successive month in which rates were left unchanged after a series of basis points of hikes from March onwards.
In its monetary policy statement accompanying the decision, the bank said that “Hungarian economic growth has remained subdued and inflation has been falling at a slow rate recently.”
The central bank added that it “will stand ready to take the necessary steps” to achieve its 3% inflation target necessary to eventually join the euro.
The forint has gained 10% against the euro this year, and 17% against the dollar.
The Monetary Council of the MNB had considered all three alternatives (raising interest rates by 25 basis points, lowering them or holding steady), although the final decision was nearly unanimous, Deputy Governor Ferenc Karvalits told a press conference on Monday.
“Over the recent weeks the forint has strengthened considerably on good fundamentals,” Karvalits was quoted as saying by Portfolio.hu.
“State finances have become more stabilized, with decreased budget deficit and external financing requirements.
“The elimination of the trading band tight monetary policy played an additional role in the increased strength of the forint.
More attractive
“The global investment environment has also changed, the region’s money markets have become more attractive to investors, and national currencies have appreciated,” the deputy governor continued.
The recent developments have shown that the central bank is ready to take advantage of the new opportunities opened up by the elimination of the forint’s trading band of the forint, he added.
“In our view, interest rates must remain level in order to achieve the inflation target.”
Karvalits said Hungary’s budget deficit target seems attainable both in 2008 and 2009.
Regarding inflation trends, Karvalits said recent developments with oil price hikes and the stronger currency, coupled with CPI and wage data were more positive than negative, although the overall picture had not changed significantly.
Portfolio commented that “Overall, MNB’s communication remains cautious, without excluding the possibility of future tightening of monetary policy. At the same time, there are subtle signs of a slightly relaxed stance.
“As long as the forint remains strong, and this is reflected in MNB’s next inflation forecast due in August, a scenario in which the national bank refrains from further rate hikes is possible; this would justify the latest market expectations.”
Currencies in the region as a whole have been performing strongly, particularly the Czech crown and the Polish zloty.
Includes reporting from Portfolio.hu. For the latest forint exchange rates (as of noon on Tuesday July 22), see Currencies, page four.
BP Sun file photo/Gergely Rónai
23.07.2008