The MNB will need more robust action, the government is doing what it can

HUNGARY - In Brief 07 Mar 2022 by Istvan Racz

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With the forint at EURHUF 395-400 today and down by 10% since the start of the war, it looks like the MNB will have to intensify tightening efforts this week. Unless the ECB provides extra help to the MNB to protect the forint, which may be wishful thinking on our part, the sterilisation rate will have to be raised most probably by a bigger amount than the regular smaller-size steps so far. And it is also a question if it is a sufficient reaction to wait until the next weekly tender on Thursday, or the Monetary Council should deal with the issue at tomorrow's pre-scheduled meeting. The latter was originally defined as a non-rate-setting meeting, but extraordinary times require extraordinary solutions, as many say in these days. So we expect the Council to react to the current instability tomorrow as latest.Meanwhile, the government is doing what it can to minimise the damage caused by the war in Ukraine. Late last week, it banned the exports of all sorts of grain with immediate effect. As well-known, Russia and Ukraine are major grain producers and exporters, and so if big parts of that produce is falling out, global food prices may rise very substantially. In long term, Hungary is a natural winner on food, given that 60% of its territory is agricultural land, and the country potentially has a very substantial food surplus, in the same way as it is a natural loser on more expensive energy, importing 90% of its oil, 85% of gas and 30% of electricity.Another set of measures, also late last week, had to do with the temporary freezing of fuel prices, which is currently set to be in effect until May 15. This is about selling two basic types of fuels at a maximum HUF480 per ...