National Bank of Hungary preview: More clues for more cuts
At a Glance
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.
Key Takeaways
- 01Expect a 25 basis point rate cut from 5.75% to 5.50% on August 25.
- 02July's headline inflation dropped to 1.2% YoY, indicating a potential downward trend.
- 03Further cuts are possible, leading to a terminal rate of around 4.75% by year-end.
- 04Global geopolitical factors could alter the optimistic outlook if they arise.
Full Analysis
What the desk is arguing
The National Bank of Hungary is expected to confirm another round of rate cuts in its upcoming meeting, reinforcing its easing stance following favorable inflation data. The desk views the likelihood of a 25 basis point cut to 5.50% on August 25 as a pivotal moment for the markets, especially in light of July's inflation print of 1.2% YoY, which is significantly below the central bank's prior forecasts.
The anticipated cuts will likely be assessed alongside the September forecast update, with intentions to signal a more optimistic outlook on inflation trends. The desk projects that, assuming no black swan events disrupt the economic landscape, the terminal rate could reach as low as 4.75% by December 2023.
Where it sits in our coverage
This forecast aligns with jpmorgan's outlook for easing while diverging from bofa, which expects a lower terminal rate. The desk’s projection effectively sits at the upper boundary of the available targets, indicating a more aggressive easing trajectory compared to the consensus.
How other firms see it
Firms like jpmorgan are aligned with our view of further cuts, while bofa presents a contrary stance anticipating more cautious movements. The dynamic between these firms suggests a divided outlook on the pace of future monetary policy adjustments and their impact on the forint.
The trajectory of Hungarian interest rates will likely interact closely with the EUR/HUF exchange rate, reflecting broader market sentiments and future ECB policy decisions.
Market Implications
Watch for movement in the EUR/HUF exchange rate as the market digests the central bank's decisions. A stabilization around the 370 mark could provide insight into traders' confidence in ongoing easing measures. Positioning ahead of the central bank meeting could see heightened volatility.
From the original
Articles National Bank of Hungary preview: More clues for more cuts Published 10:20 Hungary Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Hungary’s ‘mini rate cut cycle’ is coming to an end, but further easing remains likely, parti
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