Forint hovers near one-year lows, other FX steady

By Karol Badohal

WARSAW, March 1 (Reuters) –Hungary’s forint hovered just above its weakest levels in nearly a year on Friday, as ramped up monetary policy easing earlier this week weighed on sentiment while a spat between the central bank and the government increased volatility.

Hungarian rate setters slashed the base rate by a full percentage point to 9% on Tuesday, temporarily cranking up the pace of cuts after weaker-than-expected growth and benign inflation data since the bank’s January meeting.

“(On Thursday), the central bank governor accused the government of infringing the independence of the central bank, but the government said they’re not doing that. That caused a roller-coaster ride for the currency,” Equilor head of research Zoltan Arokszallasi said.

As the economic recovery lags, the government and the National Bank of Hungary have been engaged in a dispute for months, with the central bank chief sharply criticising the governnment’s policies and the economy minister calling for sharper rate cuts. This dispute continued on Thursday with a fresh spat between the central bank governor and the government.

“Against this backdrop, next week we will have a bunch of economic data which could move the HUF,” Arokszallasi said.

Hungary’s data releases next week include industrial output, retail sales and inflation readings.

By 1006 GMT, the forint EURHUF= was down 0.2% against the euro at 393.75, after hitting a nearly one-year low of 394.90 per euro on Thursday and closing February down 2.4% in its worst monthly performance since July 2023.

In Poland, the zloty EURPLN=, backed off from testing its strongest level in four years earlier this week, caused by steady interest rates and a long-awaited announcement of the unblocking of European Union funds. It held steady within the middle of its February range at 4.3175 per euro.

“After a failed attempt to permanently break below 4.30, the volatility on the pair has weakened for now,” ING Bank Slaski analysts wrote in a note, adding they expected further attempts at that level next week.

Next week’s Monetary Policy Council meeting “will extinguish market expectations for quick rate cuts”, they said.

Polish rate setters are expected to keep interest rates on hold next Wednesday. The central bank will also release fresh economic forecasts.

Elsewhere, the Czech crown EURCZK= was flat at 25.345 per euro, on the stronger side of its weakest levels in two years, which it hit in mid-February, as the Czech central bank accelerated easing amid a weaker growth outlook.

Also on Friday, Central European manufacturing activity showed some signs of improvement in February as a downturn in Poland and the Czech Republic eased while Hungary’s production increased.

Reporting by Karol Badohal in Warsaw, Krisztina Than in Budapest; Editing by Emeia Sithole-Matarise

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