EURHUF reached a record high today

HUNGARY - In Brief 29 Aug 2019 by Istvan Racz

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The EURHUF exchange rate reached an historic record high at 331.85 today, against which it has recovered a bit in later trade. The forint has never been this weak; so far its record low was last summer's short-lived 330.8 level.Almost immediately, the MNB was asked for comment by Reuters, but the central bank caused no surprise, by saying once again that they had no exchange rate target and preferred not to make any comment on exchange rate events, as usual.We do not think that the forint's most recent weakness is surprising to any extent, although we do not believe either that the MNB would regard EURHUF above 330 as desirable for the time being. Here the key point is not so much what caused the forint's weakness. There are enough reasons, both foreign (US-China trade war, Brexit, weak German economy) and domestic (recent moderate inflation data, no rate-hike expectations) to make the forint weak. But the thing that is really important to notice is that the MNB has done essentially nothing so far to make the forint any stronger. On the contrary, it actually intervened against the forint at recent times.On other macro news, the most recent evidence is mixed from the point of view of inflationary and currency prospects. On the one hand, the ESA-2010 fiscal balance was another small surplus in Q2, so in H1, the general government actually reported a surplus of 0.7% of GDP. In short term, this should lessen expectations of higher interest rates (if any at the moment) and thus it is forint-negative. On the other hand, fixed investment by the government and the enterprise sector rose by 18.8% yoy in Q2, investments in manufacturing (+29.7% yoy) being the leading factor. The...