'Careful but resolute price control measures' have sent EURHUF up to 391-392

HUNGARY - In Brief 16 May 2022 by Istvan Racz

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Parliament formally elected Viktor Orbán for prime minister for the fifth time today. In his introductory speech, held in the afternoon, he spoke of inflation, saying that the government and the central bank will need to cooperate to solve the problem. On the government's role, he said: 'Careful but resolute price control measures will follow, the results will be seen in September, and by the end of the year we will have developed sustainable conditions, until Brussels will return to the path of sober economic policy.' This was reported by Reuters, and as a result, the forint fell from around 385 to 392 in EURHUF terms. The local media explains the fall by saying that the market may have been disturbed by the promise of further interference with market mechanisms through administrative price controls.In our view, may be the combination of this with negative comments on EU policies may have been the real problem. Other than this, PM Orbán has been reported as speaking as someone who does not want to escalate conflicts with the EU, which is reasonable, but it may be difficult for him to do so when rule-of-law problems are now becoming aggravated by the existing lack of agreement on the EU's proposed oil imports ban against Russia.A further potential problem may be that the preliminary Q1 BOP data has come out, and the figures are not that spectacular (although no one appears to have mentioned this publicly so far). The current account deficit was an annualised 6% of GDP, partly compensated by 4.1% of GDP incoming net capital transfers, mainly from the EU, which would be largely OK, though far from splendid. However, there was also an errors and omissions deficit of 8.8% ...