Should MNB intervene? – Commerzbank

In a recent column we discussed the issue of the recent sharp depreciation of the Hungarian forint exchange rate, wondering whether the central bank (MNB) should intervene in an emergency. The depreciation of the Hungarian forint is accelerating, even against a weak euro; and underperformance against Eastern European peers continues to widen (for example, the PLN/HUF cross is continuously rising), notes Commerzbank’s FX analyst Tatha Ghose.

A weak euro environment is bad for high-beta currencies in the region

“There is not much fundamental to add at this point. A weak euro environment is bad for high-beta currencies in the region; the forint tops the list of vulnerable currencies. Oddly enough, it doesn’t help that the country’s leader, Viktor Orban, has been in the media a lot lately with his high-profile geopolitical rallies linked to the issue affecting the euro – the regional security situation – and his position is out of line of the EU’s central position.”

“Nevertheless, from our perspective, the possible reaction function of the central bank is important. MNB has paused the clipping rates and switched to more aggressive language. This doesn’t prove enough. We already wrote in our last piece that when we say ‘intervention’, we don’t mean direct FX intervention. In fact, we don’t find the question of whether or not MNB could intervene in the foreign exchange market very interesting – because such things usually do not have a major or lasting impact.”

“What we mean by intervention is whether MNB should come out at some point and raise interest rates again. We think a level like 420.0 or 425.0 in EUR/HUF could force the CB’s hand in this regard. That’s why we keep a close eye on it.”