The Monetary Council did or said nothing today, the forint appears largely free to weaken further

HUNGARY - In Brief 28 Jan 2020 by Istvan Racz

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Following today's regular monthly rate-setting meeting, the Monetary Council made no announcement of any policy decision. Especially not one which could be understood as an attempt to stop or reverse the forint's ongoing weakening trend (down 2% vis-a-vis the euro since last month's similar meeting).In fact, the Council introduced in its statement a brief section on the coronavirus situation, which in their assessment can be a source of extra uncertainty and volatility, potentially leading to enhanced risk aversion as regards emerging markets. Such remarks are normally taken as a signal that decision-makers see reason for extra caution before any decision is made. In addition, they concluded that global monetary conditions have become looser during the latest quarter and are likely to remain so for a while. Finally, they said that further monetary policy steps will require sustained changes in the inflationary outlook, meaning in our view that from now on, they will want more bad news before they resort to any tightening of policy.This looks like the Council has become even more confident that inflation is heading down and its super-loose policy stance is fundamentally correct. Of course, investors will remember that the Bank still acted to tighten liquidity on the occasion of the last two weekly FX swap tenders, but they will also promptly realise that those were very small steps, with little actual monetary or currency market impact.