The MNB and the EPP: the status quo remains in both areas

HUNGARY - In Brief 21 Nov 2019 by Istvan Racz

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Following unsuccessful attempts to break out on both sides, the forint seems to have settled down in the EURHUF 330-335 trading range again. From the point of view of fundamental analysis, this seems to be a logical development.One recent event in this respect was Q3's better-than-expected growth data. This could have changed policy in principle, but the basic rule remains that even though the MNB have been forecasting a slowdown in the economy for quite a while, they are actually working hard to avoid it. So before Tuesday's rate-setting Monetary Council, the rational expectation had been no policy change (OK, some analysts expected a minor change in the MNB's language, with eyebrows raised roughly halfway in response to the poor October inflation data). But what happened was absolutely no change in whatever respect: the Council held on to their interest rates, liquidity target, inflation forecast and risk analysis without any amendment or modification. This also offers a conclusion with regard to the forint: given EURHUF has been trading mostly in the 300-335 range most of the time recently, no action from the MNB should mean that central bankers are satisfied with the status quo.The other possibly important event was the European People's Party's congress held over the last two days in Zagreb. Here Fidesz could have been expelled from the party family but it did not happen, and that was once again in line with expectation. Fidesz' membership remains suspended and the EPP is now set to make a final decision on the subject by end-January. So most probably, the political agreement on the EU budget is meant to be achieved first, and the EPP's decision on Fidesz may then...