Should MNB intervene? – Commerzbank

The depreciation of the Hungarian forint is accelerating against that in Eastern Europe, especially after a negative GDP reading in the third quarter. Against the euro, the forint has crossed the 405 level and appears to be heading towards the 410 mark. Commerzbank’s EUR/HUF forecast is 415.0 for the end of 2025. But this current development does not seem to be just orderly progress towards such a goal, notes Commerzbank’s FX analyst Tatha Ghose.

MNB’s aggressive attitude is justified

“The forint is prone to higher volatility and high-beta swings during periods when risk is not high, and could spiral slightly out of control, requiring emergency action from MNB. In such scenarios, exchange rate pass-through could become a dominant inflation driver – which is why MNB would like to halt developments early.”

“What we mean by intervention is that the MNB may have to come out and verbally adjust its monetary policy guidance further – possibly warning of a reversal in rate hikes if the situation worsens.”

“If things were to move in this direction, government support in the media would be crucial. Any contradictory comment from government officials could have a quickly destabilizing effect. If market conditions subsequently continued to deteriorate for external reasons and the EUR/HUF reached, for example, 420, actual interest rate increases would become necessary. Even if they were not strictly necessary for inflation targeting, they would be necessary for the exchange rate – because this would be the market’s way of testing the central bank.”