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Hungarian Forint Strengthens As Central Bank Leaves Interest Rates Unchanged

May 26, 2020 at 18:48 by Andrew Moran

Hungarian coins and notesThe Hungarian forint is strengthening on Tuesday as the central bank left interest rates unchanged and confirmed that it would not be ultra-aggressive in its quantitative easing efforts as its global counterparts. The institution’s decision left investors with the impression that Hungary’s economy could withstand the global fallout from the coronavirus pandemic.

On Tuesday, the National Bank of Hungary (NBH) announced that it would leave the benchmark rate at 0.9% and its overnight deposit rate at -0.5%. The decision was in line with what analysts had anticipated.

According to the Monetary Council’s assessment, the central bank’s overhauled monetary policy efforts had reached their goals and everything it had done to fight the myriad of economic problems was deemed appropriate. As a result, the NBH will purchase government bonds sparingly rather than mirror the aggressive acquisitions by the central bank’s global counterparts.

Before the policy meeting, the organization purchased only $433 million worth of government bonds from local financial institutions. This is the lowest figure since the central bank employed these measures at the beginning of May. The numbers show that the pace of bond-buying has slowed each week this month.

Overall, observers do not expect the NBH to expand its QE efforts anytime soon.

Government yields have stabilized since the central bank started to tighten monetary policy. The 10-year government bond was unchanged at 1.86%, after climbing to as high as 2.44% late last month. The forint has also reduced volatility following its record low plunge to 370 against the euro.

The Hungarian economy is beginning to reopen after the country had been under a months-long lockdown due to the COVID-19 public health crisis. Hungary faces nearly 4,000 cases and has reported just under 500 deaths. The number of new infections has been coming down since peaking in early April.

In recent weeks, the April manufacturing purchasing managers’ index (PMI) came in at 33.6, up from 28.5 in March – anything below 50 indicates a contraction. Industrial production fell at an annualized rate of 5.6% in March, while construction output slipped to a 12-month rate of -3.4%.

The USD/HUF currency pair tumbled 1.63% to 316.91, from an opening of 322.22, at 18:39 GMT on Tuesday. The EUR/HUF declined 0.75% to 348.17, from an opening of 350.81.

If you have any questions, comments, or opinions regarding the Hungarian Forint, feel free to post them using the commentary form below.

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