CEE MARKETS-Forint moves further away from record low after shock rates rise
PRAGUE, June 29 (Reuters) – The Hungarian forint climbed further on Wednesday from a record low after a shock interest rate hike of 185 basis points, dragging central European currencies higher.
the forint EURHUF= had gained 0.33% on the day at 08:14 GMT to trade at 396.0 per euro, well above an all-time low of 404.50 hit this week.
The forint has been Central and Eastern Europe’s worst performing currency this year as factors ranging from Hungary’s high budget deficit to the introduction of one-off taxes on banks and some businesses add pressure on the currency and complicate the central bank’s fight against inflation.
On Tuesday, the National Bank of Hungary (NBH) responded by raising its base rate by 185 basis points to 7.75%, the highest rate in the region. Most economists were expecting a less dramatic increase of 50 basis points.
“There is a correction in the forint, I would say NBH has limited the scope for further weakening,” a trader said. “However, it would take more to see further significant gains in the forint to levels below 390.”
Tuesday’s hike was the largest increase in the BNH’s base rate since an emergency 300 basis point move at the start of the global financial crisis in October 2008. The move comes as others in the region continue to tighten cycles that began last year as major central banks, including the US Federal Reserve, resort to rate hikes.
The Czech central bank last week raised its benchmark rate by 125 basis points to 7.00% in a final meeting under outgoing governor Jiri Rusnok, who will be replaced by Ales Michl, a board member who voted against the rate hikes.
While this may signal the end of the bull run, markets still see chances for further tightening as inflation, at its highest level in nearly three decades, remains strong. The bank said last week that it also continued to support monetary interventions to avoid any unwanted weakening of the krone.
The crown EURCZK= was a little higher at 24.725 per euro on Wednesday, stuck in a range around the 24.70 level. Elsewhere, the Polish zloty EURPLN= increased slightly by 0.15% and the Romanian leu EURRON= was mostly flat.
Equity markets followed global markets lower, under pressure from concerns about inflation and the possibility of a recession.
An outlier was the Czech utility CEZ CEZP.PRwhich continued to rebound from a loss of more than 10% on Monday, as the government feared to consider a tax on the energy sector.
Czech Prime Minister Petr Fiala said on Tuesday that the government does not want to introduce a windfall tax on energy companies, but wants to explore what form of solidarity these companies can bring to the rest of society.
At 10:14 a.m. CET
lei in Romanian
Note: daily change
+14 basis points
+431 basis points
+0 basis points
+615 basis points
+0 basis points
+555 basis points
Note: ENG Quotes
are for asking prices
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(Reporting by Jason Hovet in Prague and Gergely Szakacs and Krisztina Than in Budapest. Editing by Jane Merriman)
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