National Bank of Hungary preview: Don’t lose all hope for cuts
At a Glance
Lead — The National Bank of Hungary (NBH) is likely to maintain its current interest rate of 5.50% at the upcoming September meeting, as inflation remains manageable but external pressures loom. Per the full note from ing-think, the recent 'mini rate-cut cycle' seen over the summer may suggest future cuts, though the geopolitical landscape and anticipated changes to the inflation target could delay further action. Inflation dynamics, particularly with energy prices and external import costs, suggest an upward revision in inflation projections, arguing for caution in rate adjustments. With no high-impact events on the horizon for Hungary until the meeting, the market’s focus will remain on fresh data and the potential for further cuts later this year.
Key Takeaways
- 01The NBH will likely hold rates at 5.50%, factoring in external inflation risks.
- 02Inflation projections are expected to rise due to geopolitical tensions and energy prices.
- 03Future cuts are anticipated before year-end, contingent on updated inflation reports.
- 04Market focus will shift towards the September Inflation Report for guiding monetary policy.
Full Analysis
What the desk is arguing
The desk posits that the NBH will hold its key interest rate steady at 5.50% during its September 21 meeting, weighing external inflation risks against previous rate cuts. This stance is buttressed by ongoing favorable developments in inflation, yet tempered by the expectation of a higher inflation target and pressures from increased energy prices. Per the full note from ing-think, despite recent lower inflation prints, the geopolitical backdrop mandates a cautious approach from the Monetary Council.
We note that the central bank's recent commitment to previous rate cuts indicates a willingness to ease, yet the September Inflation Report will provide critical insights into whether this trend can continue. Potential risks, including an upward revision in inflation forecasts driven by volatile energy markets, point towards the importance of maintaining the current rate as policy frameworks adapt to shifting economic landscapes.
Where it sits in our coverage
Currently, our consensus target for the forint against the euro (EUR/HUF) sits at 1.075, with a range spanning from 1.04 to 1.12, indicating expectations of varying future currency pressures. Notable firm projections include: - bofa: 1.04 (Mar26) - jpmorgan: 1.10 (Mar26)
This outlook aligns with the consensus expectation of stabilizing rates amid evolving inflation dynamics, positioning at the upper range of market expectations for this pair.
How other firms see it
In line with our view, jpmorgan is aligned on the importance of sustained interest rate levels, forecasting a measured approach to cuts. Conversely, bofa seems more conservative, advocating for a lower trajectory, which signals diverging strategies based on inflation expectations.
As European economic conditions remain of vital interest, the EUR/HUF trajectory will be instrumental in assessing the spillover effects of the NBH's decisions and the larger European Central Bank’s policy stance.
Market Implications
Traders should watch for significant changes around the 5.50% key rate, particularly during the upcoming Inflation Report in September. Any signs of continued upward inflation pressure could impact the EUR/HUF, potentially reinforcing its position within our consensus range.
From the original
Articles National Bank of Hungary preview: Don’t lose all hope for cuts Published 13:49 Hungary Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Following the NBH's 'mini rate-cut cycle' seen during the summer months, we believe that a temporary pause
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The National Bank of Hungary (NBH) is moving forward with its anticipated rate cuts, aligning with expectations set during its June meeting. Per the full note [source], the bank reduced the base rate to 5.75% in July and is expected to pursue additional cuts this year amid a relatively stable local economic situation. The outlook suggests a potential for a more expansive rate cut cycle as systemic risks seem manageable, particularly if recent geopolitical tensions do not escalate. The implication is that assets linked to the Hungarian forint (HUF) may attract renewed interest under these conditions.
National Bank of Hungary preview: More clues for more cuts
The imminent rate cut by the National Bank of Hungary signals the central bank's continued commitment to easing monetary policy amid improving inflation metrics. Per the full note [source], a 25 basis point cut to 5.50% is anticipated on August 25, following July’s headline inflation drop to 1.2% year-on-year, which undershot the bank's expectations. This cycle should converge towards a terminal rate of 4.75% by year-end, with the next inflation report in September likely providing additional direction. Given the current positioning, the Hungarian forint may face downward pressure as further policy accommodations are set against a backdrop of steady energy prices and a stable EUR/HUF exchange rate, barring any unforeseen geopolitical shocks.