Foreign investors could benefit from Hungary's central bank's unconventional interest rate rise of 12% in the €930 billion local currency government bond market. The action taken last week was intended to stop the forint from losing more value. To reduce yields and increase the price of government debt, there are other two factors that must be present.

Fiscal policy and the distribution of EU funding are the other two things to keep an eye on. The first seems firmly grounded. The government has demonstrated a strong commitment to controlling spending. Less certainty surrounds the release of EU funding. The government appears to be certain that this will occur in December. The EU is still undecided.

The central bank's action immediately had two effects. Against the euro, the forint rose sharply. Since the increase on October 14, it has risen by almost 4%. Bond yields increased along with falling bond prices, with the benchmark 5-year yield rising 0.6 percentage points to 12.23% during the last week, according to statistics from Refintiv. The government anticipates the currency holding its gains and a decline in bond yields. There is a chance for it.

The overnight collateralized lending rate increased by 9.5 points to 25% on Friday, and the central bank enlarged its "interest rate corridor" between that rate and its policy rate, which remained constant at 13%. The bank may increase the 18% offered by the one-day deposit facility at any time. The goal is to drain liquidity from the interbank and foreign exchange markets. For investors who have shorted the forint since the central bank stopped its cycle of raising policy rates last month, this is bad news.

Additionally, the bank said that it would provide foreign currency directly to energy importers, further eroding the market. Hungary would have a current account surplus of about €3 billion even after paying its around €12 billion energy import bill. Compared to other adjacent nations, it is far more vulnerable to rising energy prices.