On the forint once again: no rate cut in November either?

HUNGARY - In Brief 29 Oct 2024 by Istvan Racz

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Well, with the forint still following a weakish trend and standing at EURHUF 405 today, it may be time to admit that the MNB's plan to stabilise the exchange rate and hold EURHUF back from running above the 400 line for any longer period, by skipping one month in its rate cutting series just does not work. True, tomorrow's preliminary GDP data for Q3 has been officially hinted to be relatively weak (Mr. Nagy speaking about this, without mentioning any specifics, the other day), but even though that may be positive for the BOP and inflation upfront, it is certainly negative for the government budget and Fidesz politics, probably reducing investors' confidence that no major fiscal loosening may be coming in 2025. (By the way, our forecast for Q3 GDP still is +0.3% qoq, +0.8% yoy, some recovery from Q2's -0.2% qoq, yet down in yoy terms from 1.3% in the previous quarter.) As there are no domestic factors to support the forint (e.g. only bad news on access to EU funds, if anything, lately), external factors are coming into play. And these are more like negative at present, on three fronts: - the development of divergent paths for US and European interest rates and so the recent strengthening of the dollar against the euro;- investors possibly discounting any MNB policy by the essentially sure prospect of an upcoming management change in the Bank; and- the not at all negligible likelihood that Mr. Trump will win the US presidential election. The first two of the foregoing are pretty much self-explanatory, whereas the third one may need to be elaborated on just a little bit. Even though Mr. Orbán seems to act as a highly determined supporter of Mr. Trump, the latter's electi...