Since late October, the Hungarian Forint (HUF) has experienced heightened volatility, driven by pivotal events like the US elections and the Federal Open Market Committee (FOMC) meeting. The EUR/HUF exchange rate climbed past 410 following the elections, reflecting broader market apprehensions. Concerns over a potential change in monetary policy under a new central bank chief, replacing Gyorgy Matolcsy in 2025, further weighed on the forint last week. Speculations about Finance Minister Mihaly Varga being a potential successor have added uncertainty, particularly as markets fear a tilt towards looser monetary policies amid weak economic fundamentals.
Despite assurances from the Hungarian government that monetary policy would remain stable with no drastic interest rate cuts, the market remains watchful. Commerzbank’s FX analyst Antje Praefcke emphasizes the critical role of today’s MNB meeting in restoring stability to the HUF.
Key Considerations for the MNB Meeting
- No Change in Key Interest Rate Expected: The central bank is expected to maintain the key interest rate at 6.50%. However, decisive communication will be crucial.
- Forint Volatility: The forint’s susceptibility to risk aversion and its role in influencing inflation may prompt the MNB to consider emergency measures if volatility continues.
- Signaling Stability: The central bank needs to project readiness to stabilize the exchange rate, possibly hinting at future rate hikes, to curb further depreciation and mitigate inflationary pressures stemming from currency weakness.
Analyst Perspective
Praefcke notes, “In this mixed environment, the central bank has to decide its course with a firm hand. The currency weakness and heightened volatility in the forint should prompt the MNB to demonstrate responsiveness and preparedness, signaling stability to the markets.”
Although the forint has shown signs of recovery, its vulnerability remains evident. A robust stance from the MNB, emphasizing its commitment to addressing market instability, could help restore confidence and stabilize the HUF in the face of ongoing economic challenges.