No rate hike and a weaker forint this morning

HUNGARY - In Brief 07 Apr 2022 by Istvan Racz
In a surprise move - at the very least, we were surprised - the MNB has not raised its sterilisation rate further today, calling the usual weekly deposit tender with an unchanged 6.15% fixed interest rate. This worked as an outright invitation for EURHUF to try itself above the 380 level, following the 376-377 level, where the forint weakened to after the EU's announcement on the start of a rule-of-law procedure earlier this week. And yes, it happened, the forint is currently trading around EURHUF 382, as a first reaction to the MNB's rate decision.Since early November 2021, the MNB has been seen as defending the EURHUF 370 line, and so it is a legitimate question if today's inaction actually means a change in the Bank's short-term preference regarding the EURHUF exchange rate. Anyway, CPI-inflation for March is due to be reported tomorrow. The MNB's expectation was 8.5-9% yoy for the headline rate, as communicated by the vice governor after the March rate-setting meeting, up from the actual 8.3% in February. Analysts seem to agree: in Portfolio.hu's poll, the median forecast is 8.65 (the range is 8.4-9.1%). For end-2022, the same analysts expect the same 8.65% yoy as a median forecast, but quite naturally with a much broader range of 7.4-10.1%.Given this outlook, which seems to be based on the assumption that all the existing administrative price freezes will be maintained for the whole of the current year, one would expect the MNB to be a bit more ambitious regarding interest rates and EURHUF. Should the Bank loosen up its EURHUF preference, that could eventually mean the tacit acceptance of higher inflation, which would be against its primary mandate but also help t...

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