(Bloomberg) -- The Hungarian forint slid to a fresh two-year low as investors nervously awaited Prime Minister Viktor Orban’s choice of the next central bank governor.
The currency traded as much as 0.7% lower on Wednesday at around 413.2 per euro, its weakest level since December 2022. Its central European peers, the Polish zloty and Czech koruna, both were little changed on the day.
Read: Hungary’s Orban Poised to Pick New Central Bank Chief in Days
Orban has said he will pick either Finance Minister Mihaly Varga or Economy Minister Marton Nagy to replace outgoing governor Gyorgy Matolcsy, with an announcement due in days. The uncertainty about who will helm the central bank has weighed on the forint on concern the government will wield greater influence on rate-setting.
Varga is considered the frontrunner for the role, but his appointment to the central bank would hand Nagy an enlarged government portfolio, with the finance ministry due to be eliminated as a separate entity. Nagy, who served as deputy central bank governor between 2015 and 2020, has had a public falling out with Matolcsy, repeatedly criticizing the central bank and calling for more stimulus.
Ties between the cabinet and the central bank “have rarely touched such a low point as now,” Nagy told Index news website in an interview published Wednesday. The relationship will “hugely improve” when the new governor takes over, he said.
JPMorgan Bullish
Earlier this week, Nagy promised “stronger” cooperation between the government and central bank once the new governor is in place.
Such talk “promotes the impression that the government is impatient that rates are not being cut already and is waiting to ‘redress’ all this in March 2025 by nominating a new team,” Commerzbank AG analyst Tatha Ghose told clients.
Signs that Orban will strengthen his influence over monetary policy “gives the impression that we should get ready for sudden, large rate cuts – whether or not the inflation outlook warrants so,” Ghose said.
However, the new governor may not immediately yield to pressure to ease policy, Ghose reckons. The bank has paused its year-long easing cycle that took rates to 6.5% to shield the fast-weakening currency.
Still, the forint’s decline could attract some buyers. Strategists at JPMorgan Chase & Co. recommend tactically buying the currency against the dollar, arguing it’s become oversold. It has fallen around 9% against the greenback this quarter, far more than the slide neighboring currencies have endured.
Hungary also offers higher real yields than peers, as well as the best balance of payments in the region, JPMorgan strategists including Anezka Christovova note. Ten-year bonds currently yield about 6.43%, compared with 5.64% for Poland’s local bonds and 4% in the Czech Republic.
--With assistance from Kerim Karakaya.
(Updates with chart, strategist views)
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