The forint’s rise has tightened monetary conditions in Hungary since the last June rate meeting but its impact on rate policy will be clearer only by August, central bank Governor Andras Simor said on Friday.

Simor told news agencies on Friday that he believed there was no significant new information available which should change the Monetary Council’s stance since the last June 23 rate meeting when it kept rates on hold at 8.5 percent. The next rate meeting is on July 21 and most analysts said the bank was likely to keep interest rates on hold again this month, while a hike is still possible in August.
“Monetary conditions have tightened over this period (the past month) as the exchange rate has firmed,” Simor said in an interview with news agencies.
He added that the bank’s fresh quarterly inflation report due to be released in August will be key to assessing the impact of the strong forint and the inflation risks.
“What this (forint firming) is enough for, mainly our inflation report in August will show.”
Simor said tight monetary policy did not necessarily equal rate hikes, citing the Czech Republic as an example where rates were relatively low and policy still tight.
The forint has firmed to an all-time record of 229.55 versus the euro earlier this week, from levels around 248 a month ago, boosted by high interest rates and as the unit had crossed several key resistance levels after the abolition of its trading band in February.
Other currencies in the region, the Polish zloty and the Czech crown , have also firmed to record highs this week, which is seen helping central banks curb high inflation.
Simor said the forint has been bolstered by several factors, including Hungary’s improving fiscal and external balances, and comments by the European Central Bank which cooled expectations for further rate hikes in the euro zone.
He said this year’s budget deficit may come in at 3.6 percent, below the target of 4 percent of GDP, and next year's deficit target was also achievable.
---Less volatile forint
Simor said the bank could best dampen volatility in the forint by communicating in a predictable and clear way.
“Of course we would like if there was no overshooting (in the forint’s rise) and volatility would be lower,” he said.
“What worries me at the moment is whether the economy is able to adapt to this relatively fast change (appreciation) in the exchange rate,” he added.
The strong forint helps cut inflation by making imported goods cheaper but can hurt exporters and economic growth.
Hungary’s headline inflation slowed to 6.7 percent in June from 7.0 percent in May and came in below analysts’ expectations for 6.9 percent, data earlier on Friday showed.
Simor said the figure was “surprisingly favorable” but he declined further comment on the data.
When asked about inflation risks, he said external risks were rising due to a surge in oil prices since May.
“However, in agricultural prices, perhaps there may be a reversal of the trend in Hungary as well,” he said.
Simor said there was no new information about any significant changes in inflation expectations since June.
(Source: guardian.co.uk)