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JPMorgan Less Convinced This Is Final Chapter Of HUF Weakness

HUNGARY
  • JPMorgan judge as most important the introduction of a new 1-day deposit facility, paying 18%. This should lift effective funding rates from 13.4% to at least 16% (after the expiry of the 1-week deposit facility next week).
  • At this juncture, JPM judge the interest rate measures as sufficient to stabilize HUF, which in turn should stabilize front-end rates markets, in their view. In FX, they take profits on their long USDHUF position and on the rates side, they take profits on our 6x9 FRA payer, but stay UW HGBs in the GBI-EM Model Portfolio.
  • However, JPM are far less convinced this is the final chapter in the HUF depreciation trend. First, the measures add an extra layer of complication to an already complicated policy framework, with NBH effectively introducing daily policy decisions. This might be helpful at times of FX market pressure, but it also calls into question NBH’s commitment to maintaining this rate. Second, with muted policy transmission it is not clear these hikes can solve the underlying imbalances or local FX behavior, absent a more decisive fiscal tightening.
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