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Repo Reference Rates

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  • HUF has been relatively weak in the past two months even though the NBH has been raising rates since June to curb the inflationary pressures.
  • We saw that market was slightly disappointed this week with NBH deciding to hike the benchmark rate by 15bps to 1.80%.
  • A 30bps hike could have eased the volatility on the long end of the interest rate curve and the selling pressure on HUF.
  • Selling pressure could remain elevated in the near term, which will continue to weigh on the HUF (which has been trading at multi month lows against major crosses).
  • This chart shows that HUF NEER (nominal effective exchange rate), which looks at the performance of HUF versus a broader range of currencies, appears significantly undervalued relative to historical norm, currently standing 15% below its LT average.

Source: Bloomberg/MNI