New policy instrument in Hungary weakens the forint – TDS

FXStreet (Edinburgh) - The research team at TD Securities has assessed the recent new measures announced by the Hungarian central bank.

Key Quotes

“In a surprise move today, the NBH announced that from 23 September of this year, 3-month deposits at the CB will be its key policy instrument”.

“The current 2-week CB deposits will be maintained, but the volume available will be significantly restricted”.

“On the announcement of the new policy instrument EURHUF immediately rose by 0.5%”.

“Given that the ultimate aim of the move is to reduce the external vulnerability of the Hungarian economy we do not think that it is fundamentally negative for HUF”.

“However, short-term weakness may be as a result of some foreign money being, indirectly, deposited at the CB via 2-week deposits”.

“Clearly, from a liquidity point of view a 2-week deposit is more attractive than a 3-month deposit for foreign investors”.

“Therefore, restrictions on the volume of 2-week deposits in the future will make HUF a slightly less attractive place for foreigners to park short-term money”.