Coping with the speculative attack against the forint's band

On 15 and 16 January 2003, an intensive speculative attack was launched against the exchange rate band of the forint. This study analyses the monetary policy decisions with regard to the antecedents of the speculation, the events of the speculative episode and the subsequent period of consolidation. The study finds that the speculative attack was irrational and unjustified in view of several considerations. Through adjustments in the policy rate and the modification of monetary instruments, the MNB was able to defend the exchange rate band of the forint. The MNB successfully localized the effects of the speculative attack on the interbank market. The MNB’s presence on the foreign exchange market facilitated the rapid and controlled withdrawal of the speculative capital, without threatening the disinflation process and the stability of the financial system. The investors taking part in the speculation incurred substantial losses, while the market developments after the speculative episode increased the banking system’s profit.