bne IntelliNews – Hungarian central bank ready to intervene as forint and stocks go into free fall

The Hungarian National Bank (MNB) will use all elements of its toolbox to intervene to ensure the stability of domestic financial markets if necessary, the central bank told state news agency MTI on March 1, after the Hungarian currency and the stock market collapsed. free fall.

The escalating conflict in Ukraine and the resulting global financial tensions rattled Central European markets as investors shifted into risk mode and sold emerging market assets.

Hungary’s central bank criticized the way the government fueled a pre-election boom, which drove up the budget deficit and inflation, and drove up interest rates. The current turbulence in emerging markets could now mean that Hungary is being punished by international investors due to its deteriorating macroeconomic fundamentals.

Regional currencies all weakened on Tuesday, with the forint plunging to a new all-time low, slipping above 379 for the euro during the day from 371 the previous day. Over the past five trading days, the Hungarian currency has lost 6% of its value. The USD/HUF rate also peaked at a record 340, up 8.1% since the crisis.

Meanwhile, the National Bank of Poland said on March 1 that it had carried out a “sale of a certain amount of foreign currency” in an attempt to strengthen the zloty, which weakened following the aggression of Russia against Ukraine.

Although Central European companies are less exposed to the Russian and Ukrainian markets than they were previously, market turmoil is hitting the region’s currencies and could create inflationary pressures forcing central banks to make further interest rate hikes. In the longer term, however, the blow to the global economy could cause central banks to begin easing.

Central European central banks were among the first in the EU to raise rates over the past year, but the Russian invasion and Western sanctions are expected to drive up inflation, which could force banks central banks to raise their rates again. Czech Central Bank Governor Jiri Rusnok said last week that he expected the conflict to have a pro-inflationary effect.

“It’s an external event, there’s nothing we can do about it,” a currency trader said after the forint selling panic accelerated in the early afternoon. Even a rate hike would not help halt the decline, he added.

Hungary’s central bank is monitoring the situation closely and is ready to intervene at any time, she said. Financial trends in the region are currently being shaped by external circumstances, the consequences of an extraordinary military conflict at the moment, he added.

Data from the recovery period after the coronavirus pandemic show that the fundamentals of the Hungarian economy are solid, the MNB said. “The clear objective of the MNB is to ensure that the increased risks due to geopolitical circumstances do not jeopardize Hungary’s price stability and financial stability. Movements in the money market are not justified by fundamentals, but they increase the risks of inflation on the upside,” the MNB said.

Hungarian stocks also suffered their biggest intraday declines since the 2008 economic crisis. Hungary’s biggest lender. The benchmark BUX lost 11% to 38,913.62, extending losses which are now close to 20% since February 22. Technically, the painting is not good. The BUX index is currently below the 20, 50 and 200 day moving averages.

Hungary’s biggest lender, OTP, went into freefall, losing 21.5% to HUF 10,005, its lowest level since March 2020. The stock’s turnover hit HUF 59 billion, more 80% of the session total of HUF 72.5 billion.

The largest national lender in Central and Eastern Europe, present in a dozen countries in the region, has subsidiaries in Russia and Ukraine. The two accounted for 8% of the loan portfolio and 15% of net profit in Q1-Q3.

The sale wiped out HUF11 billion (€30 million) in assets held by CEO Sandor Csanyi, Hungary’s second-richest man. Kafijat Group, owned by the Rahimkulov brothers, lost HUF 54 billion overnight.

Oil and gas company MOL fell 5.64% to 2,444 HUF, pharmaceutical company Richter fell 5.46% to 6,585 HUF and Magyar Telekom fell 3% to 404 HUF.

The Polish zloty weakened significantly against the US dollar, euro and Swiss franc on the morning of March 1, with gains after the NBP intervention. A week after the start of the war, the zloty lost around 5% of its value to the major currencies.

“The [recent] the depreciation of the zloty is not consistent with the fundamentals of the Polish economy, nor with the monetary policy stance of the NBP,” the central bank said in a statement.

“The NBP has an adequate level of foreign exchange reserves and has an appropriate set of instruments to counter negative trends in financial and currency markets,” he added.

The zloty trailed 0.2% against the euro in morning trading on March 2. It also weakened 0.34% against the US dollar and 0.27% against the Swiss franc.

The NBP also said that Poland’s economic exposure to Russia and Ukraine is insignificant and should limit the impact of the crisis. A bigger issue is rising energy commodity prices, the central bank added.

“In light of the information available, despite the negative impact of increased uncertainty and rising commodity prices, economic growth in Poland will remain strong,” the NBP said.

In the Czech Republic, the krone depreciated to 25.13 per euro on March 1.

In a daily interview Hospodarske Noviny Tomas Holub, board member of the Czech National Bank, said inflation in the Czech economy will accelerate, mainly due to the impact of the Ukrainian crisis on energy prices, and that it could exceed 11%. It is therefore important to preserve the public’s belief that inflation will return to the central bank’s 2% target, Holub said.

The Czech central bank said last week that it had sufficient tools if it became necessary to stabilize the markets and that it was ready to react to curb excessive fluctuations.

The Czech PX index fell 2.12%, with Erste Bank down 9%, Moneta Money Bank down 2.31%, Komercni Banka down 2.05%, while arms company Ceska Zbrojovka and antivirus company Avast saw their shares rise.

Laura T. Thrasher