The MNB moderately tightened liquidity again today, with little impact on EURHUF

HUNGARY - In Brief 27 Jan 2020 by Istvan Racz
At today's tender, the MNB tightened HUF liquidity further, apparently with a view to halting the forint's most recent weakening against the euro. As it turned out, in fact a total of HUF 109bn swaps are maturing this week (on Wednesday), and the Bank sold only HUF 59bn of new swaps, reducing the stock by HUF 50bn (to HUF 2185bn). This also means an equal size of market intervention in favour of the forint, which is set to take place in two days' time.Initially, the EURHUF went to 337.63, an all-time high, when the Bank announced a HUF 110bn amount for the new swaps put indicatively on offer today. A few hours later, when the markedly lower actual sales number was announced, the forint first strengthened, but then it weakened again to EURHUF 338-338.5, before edging back slightly below the 338 line a few minutes ago. This means that the weakening trend seen in recent days has not been broken. In fact, there is an increasing number of market forecasts seeing EURHUF 340 before end-2020, and some forecasts are even more negative on the forint.The MNB's small tightening step could have worked with better immediate results under normal market circumstances, but the negative global sentiment seen in recent days must have aggravated the situation. Today, some currencies on the eastern side of Europe (PLN, RUB) also appear weak, whereas others do distinctly better. The forint is certainly an easy target for the MNB's firmly-held super-loose policy stance. By now, everyone knows that HUF liquidity in the banking sector is so loosely regulated that a HUF 50bn reduction should have no significant impact on interest rates, meaning that it is hardly more than symbolic.So the proble...

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