CEE MARKETS – Forint stabilizes after another sharp rate hike by Cenbank
Band Anita Komuves
BUDAPEST, April 26 (Reuters) – The forint pared its earlier losses to trade little changed on Tuesday after Hungary’s central bank raised its base rate by 100 basis points to 5.4% as expected, continuing its tightening cycle as it battles a surge of inflation.
the forint EURHUF=which had weakened earlier in the day, rose 0.01% to 374.60 per euro after the National Bank of Hungary (NBH) hiked rates again, in response to rising inflation, which is at its highest level in two decades.
The forint did not move much after the decision because it had been priced in, two traders in Budapest said.
“Now the big question is what will happen to the one-week deposit rate on Thursday,” said one trader.
The bank uses the one-week deposit rate, set every Thursday in its weekly tender, to deal with short-term market volatility. The one-week deposit rate is currently above the prime rate at 6.15%.
The central bank “has not raised this (one-week deposit) rate for a few weeks, but it acts as an upper bound towards which the base rate will converge in the coming months,” Commerzbank wrote in a note. .
“The degree of further increase in this rate will offer clues to the degree of further increase in the base rate itself.”
Yields on long-term government bonds were not immediately changed after the rate hike, said a fixed-income trader in Budapest. The yield on the 10-year bond was around 6.75%.
Markets were also eyeing an online briefing to be held at 13:00 GMT where central bank governor Gyorgy Matolcsy, in a rare public appearance, will discuss current monetary policy issues.
Elsewhere, the Czech crown EURCZK= added 0.11% and traded at 24.449 per euro. The Polish zloty EURPLN= firmed 0.17% at 4.6502 against the common currency.
Stocks in the region were mixed. Prague actions .PX added 0.58% while Budapest .BUX was 0.48% higher. Bucharest .BETI slipped 1.31%.
Warsaw actions .WIG20 increased by 0.23%. WIG Banks Warsaw Index .BKNI was broadly stable after falling about 6% on Monday after Prime Minister Mateusz Morawiecki announced plans to help borrowers struggling with high interest rates.
At 2:34 p.m. CET
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(Additional reporting by Alan Charlish in Warsaw and Jason Hovet in Prague; Editing by William Maclean and Jan Harvey)
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