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MNI NBH Review - July 2022: NBH Levitates Policy Rate To November 2008 Highs

Executive Summary:

  • The NBH decided to raise its policy rate by 100bps to 10.75%, its highest level since November 2008.
  • Even though the magnitude of the hike was higher than what markets have been pricing in recently (50bps to 75bps), the forint continues to be driven by external factors such as geopolitical uncertainty.
  • The NBH added that it sees need to raise its 1W depo rate by 100bps on Thursday.

Link to full review:

NBH CB Review - July 2022.pdf

Yesterday, the NBH decided to raise its policy rate by 100bps to 10.75%, its highest level since November 2008. Even though the magnitude of the hikes was higher than what markets have been pricing in recently (50bps to 75bps), the forint continues to be driven by external factors such as geopolitical uncertainty. Rising risk aversion and USD strength have been associated with HUF weakness, therefore the 'hawkish' move from the NBH has not generated any significant impact on the EURHUF pair, which continues to trade above the 400 level. Figure 1 (right frame) shows the strong 'co-movement' between the DXY index, which could be seen as a measure of risk-aversion (elevated when USD rises), and EURHUF spot rate.


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