An example of how the MNB can use FX swaps to influence the EURHUF exchange rate

HUNGARY - In Brief 20 Jan 2020 by Istvan Racz

---

This afternoon, the forint jumped to EURHUF 334.34 from 336.84 within 45 minutes, when the MNB announced that it did not accept any bids at today's FX swap tender, and so the stock of FX swaps is falling by HUF 38bn to HUF 2235bn, due to maturing contracts, on January 22. The MNB's initial offer was to sell EUR28m or HUF9.43bn on all four maturities, whereas banks' total bids amounted to EUR 1521m or HUF 512.45.This morning, the forint fell above EURHUF 337.06, just a bit stronger than its all-time low, and the MNB just may not have liked the idea of it weakening even further. Of course, they would never admit if that were the actual situation, as officially, the Bank has no view and no target on the exchange rate.Just as a reminder: the forint was guessed by the market to have weakened in the late part of last week due to a political event. The European Parliament voted against Hungary and Poland on the subject of the two governments' domestic political conduct, as regards democracy, civil rights and the rule of law. In the Hungarian context, it was a novelty that even the European People's Party, Fidesz's own party family gave official support to the EP decision. This sent the message that Fidesz might indeed be expelled from the EPP or be forced to leave on its own at the latter's next Political Assembly meeting on 3-4 February.By the way: The most recent rumour on the EPP decision is that there is disagreement within the three-member committee which was mandated by the EPP to report on Fidesz by end-January, and therefore the EPP could indeed postpone the decision on Hungary once again. Should this be the real situation, it could be simply done by the EPP out of po...