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The forint has remained close to COVID-19 shock lows against the euro after a brief rebound at the start of October proved short-lived. During October the Hungarian forint weakened modestly against the euro from 363.22 to 366.40. Economists at MUFG Bank expect the forint to remain fragile in the short-term but with prospects to recover once the covid shock fades.

Key quotes

“At the start of October the forint was benefitting from the NBH’s decision to tighten monetary policy but it has not proved sufficient to stabilize the forint on a sustainable basis. The NBH refrained from tightening policy further at their latest policy meeting in October after raising the one-week deposit rate by 0.15 point to 0.75% towards the end of September. The lack of further policy action though has watered down support for the forint in the near-term.” 

“The need for tighter monetary policy will be driven primarily by the NBH’s sensitivity to forint weakness. The annual rate of headline inflation slowed to 3.4% in September which has helped ease some of the upside risks to their outlook from a weaker forint.” 

“Investor sentiment towards the central European assets remains fragile undermined by the rapid spread of COVID-19. New cases in Hungary have been rising but not as sharply as in the Czech Republic and Poland. It has allowed the Hungarian government to hold off from imposing tighter restrictions on activity for now although there is still a material risk that Hungary will follow the Czech Republic and Poland with a lag. It leaves the forint vulnerable to further weakness in the near-term, although we still expect a gradual rebound as the COVID shock fades in 2021.”