USD/HUF hits 18-month highs above 322.00 before pulling back slightly as traders digest latest MNB rate hike

• The Forint has seen choppiness in response to the latest Hungarian central bank rate decision.
• USD/HUF briefly hit 18-month highs above 322.00, but has since fallen back towards 320.00.

The Hungarian Forint has seen choppy conditions in recent trade, with USD/HUF at one point surpassing prior weekly highs at 322.00 to print fresh 18-month highs, before reverting back towards 320.00. At 1300GMT, the Hungarian central bank (the Magyar Nemzeti Bank of MNB) announced that it had decided to hike its base rate by 30bps to 2.1% as expected, marking a re-acceleration of the pace of monetary tightening. The overnight deposit rate was also lifted by 30bps to 1.15% as expected.

At the September meeting, the bank opted to slow the pace of rate hikes down from 30bps per meeting to 15bps and followed up with another 15bps hike in October. The forint didn’t like the decision to slow the pace of rate hikes and at current levels, USD/HUF is up nearly 4.0% from its September lows close to 308.00.

Despite the MNB’s decision to re-accelerate the pace of rate hikes, USD/HUF’s initial reaction was a kneejerk move higher to above 322.00 from previously around 320.50, suggesting some traders had been betting on a bigger rate hike. Some might have been betting/hoping that the Hungarian central bank would follow in the footsteps of its Polish and Czech counterparts in implementing a much larger than expected rate hike. The Polish central bank hiked interest rates by 75bps in November and the Czech National Bank by 1.25%.

USD/HUF was able to reverse lower, however, in wake of the MNB’s post-policy meeting press conference, which began at 1400GMT. The bank pledged to continue the tightening cycle as expected and noted that it might lift its one-week deposit rate above the base rate (the interest rate on its one-week deposit facility was 1.8% last Thursday). The Hungarian central bank also said tightening would continue until the inflation outlook had stabilised, before noting that the risks that inflation remains elevated for longer have grown. Furthermore, the bank announced that it would stop providing HUF liquidity via its FX swap facility.

After October Consumer Price Inflation surprised to the upside at 6.5%, the Hungarian central bank said it sees inflation surpassing 7.0% in November. Analysts argued that the MNB is nimble and if upwards inflation surprised persist, the bank could accelerate the pace of rate hikes again. Whether this would be enough to turn the tide for USD/HUF, which is now up about 7.5% on the year, remains to be seen.