The MNB has kept the 1-week deposit rate unchanged today

HUNGARY - In Brief 29 Oct 2020 by Istvan Racz
The MNB has kept the 1-week deposit rate unchanged at 0.75% today, despite the weak forint, which is currently trading close to EURHUF 369.This is an important indication of the Bank's preference as to the EURHUF exchange rate. Previously, it seemed for quite a while that the Bank intended to keep the EURHUF rate south of the 365 line. However, following the unexpectedly favourable September CPI-inflation data and also in view of the prospect of renewed weakness in the European and the domestic economy due to the aggravating Covid situation, the Bank may have shifted its exchange rate preference towards a weaker level, in order to give further support to domestic output.Please, note that EURHUF 369 is 11.2% higher than the average exchange rate was in October 2019, meaning that the yoy HUF depreciation is really significant. In January-September, average EURHUF rose by 7.7% yoy.France, Germany and other European countries and regional authorities (in Spain, Italy and the CEE alike) have announced major new Covid restrictions over the past 48 hours, which are coming close to the tightness of the lockdown regimes applied in the same countries at springtime this year. For now, Hungary is resisting this trend (tightening only mask-wearing rules), but its unfavourable Covid trend does not guarantee that further tightening will not be eventually required, and Europe's likely economic slowdown in the wake of the new restrictions is essentially certain to have a negative impact on Hungary as well.

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