(Bloomberg) -- Morgan Stanley warned of a steep selloff in the forint, joining the ranks of strategists who see Hungary facing a confluence of fiscal and monetary-policy risks.
Analysts at the bank recommend selling the Hungarian currency versus the euro, with a target level at 410. The forint slid 0.4% by 2:45 p.m. in Budapest to 394.6, the second worst performance across emerging markets after the Brazilian real. The local currency bonds have returned 1.6% this year, well below the EM average of 5.4%, according to data compiled by Bloomberg. The notes also underperformed their peers in the region.
“The macro backdrop continues to deteriorate in Hungary,” strategists including Arnav Gupta said in a report on Monday.
The trade call was based on a similar catalog of risks which have already prompted bearish views from other banks such as Barclays Plc and Citigroup Inc. Morgan Stanley sees little prospect of the European Union unblocking Hungary’s frozen funds in the short term, and also mentioned uncertainties surrounding the next elections.
Bets on forint weakening have multiplied since Bloomberg reported earlier this month that Prime Minister Viktor Orban was poised to forgo budget-consolidation promises before the 2026 ballot. The government has also had to downgrade its economic growth forecasts after investment and other indicators surprised on the downside.
“We also think that both monetary policy and fiscal policy could be perceived as loose by the markets going forward,” Morgan Stanley said.
The central bank in Budapest is expected to resume cutting its benchmark rate at its next meeting on Tuesday, according to a Bloomberg survey. Deputy Governor Barnabas Virag has said the pause in the easing cycle in August was temporary, though policymakers would monitor emerging-market reaction to the Federal Reserve’s decision before making their call.
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