Currency Strength To Reduce Impetus for Hikes
July 2008 | Market StrategyIf you would like to subscribe to Emerging Markets Monitor and gain instant access to this article, please click here to subscribe.
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The National Bank of Hungary (NBH) held its policy rate at 8.50% for the second consecutive month at its monetary council meeting on July 21. According to a statement from Deputy NBH Governor Ferenc Karvalits, the council discussed all options for the base rate including cutting. This was a marked departure from the tightening bias reported from previous meetings in 2008. To be sure, the stellar performance of the forint, which has appreciated by 14.2% against the euro since the central bank began hiking in March, has been a key factor in the shift in tone. Combined with declining inflationary pressures from the key food price component, the exchange rate is likely to help rein in headline consumer price growth through the short term, thereby mitigating the need for further monetary tightening.