Hungary: when the funds go marching in

The National Bank of Hungary (NBH) is fighting an unnecessary battle. It is a battle to stop the forint appreciating. It is a battle they will lose. The NBH has an inflation target and an exchange rate target. They cannot have both. Inflows into Hungary are pushing the forint up. To stop the currency appreciating, the NBH has cut interest rates. But these rate cuts are adding to domestic inflation. If the central bank is serious about its inflation target, the forint has to appreciate.