Forint firms after Hungary central bank leaves rates unchanged, flags CPI risks

BUDAPEST: The Hungarian forint firmed on Tuesday after the central bank left its base rate unchanged at 0.6%, as expected, and said that inflation was expected at around 4% temporarily in the spring months.

The forint was 0.13% stronger on the day by 1459 GMT and trading at 358.60 per euro as the currency regained some ground after of losses earlier in the day and in the previous session.

"Emphasizing the risk of higher inflation made the bank sound more hawkish than last month," a Budapest-based FX trader said.

"This has been priced in by the market to some extent, however, the forint could strenghten as far as 355 this week."

Bond yields did not immediately react to the NBH's statement as it did not talk about specific steps against higher inflation, a fixed income trader said.

Hungarian government bond yields are mostly affected by a rise in US treasury yields now and rose about 8 basis points this morning, he said.

Markets in the CEE region were also eyeing US Federal Reserve Chairman Jerome Powell's testimony before Congress later in the day.

Investors were watching Powell's speech for comments on a higher inflation outlook and a rise in US treasury yields that has driven yields higher in the CEE region as well.

Commerzbank said that besides rising yields in the US, the Czech crown could begin feeling the impact of the pandemic as well as the country is among the worst-hit by the coronavirus amid a massive third wave.

The crown edged down 0.07% to trade at 25.913 per euro.

Czech bonds have stayed under pressure as the government's borrowing target grows this year to finance a pandemic-hit budget and also on expectations the central bank could begin raising interest rates later this year.

For the first time ever, the Czech 10-year yield has firmly risen above the Polish benchmark since January, with the spread now around 26 basis points.

Elsewhere, the Polish zloty was 0.20% weaker at 4.5065 per euro. Rate setter Kamil Zubelewicz said that an increase in unemployment could encourage the central bank to cut interest rates, adding that he did not support rate cuts.

Poland's registered unemployment rate rose to 6.5% in January 2021 compared to 6.2% in December 2020.