National Bank of Hungary preview: Next, please!
At a Glance
The desk maintains a bullish view on the Hungarian forint (HUF) following the National Bank of Hungary's (NBH) anticipated continuation of its 'mini rate cut cycle', with a forecasted base rate reduction to 5.75% on July 21. Per the full note , recent positive signals include lower-than-expected inflation and a steady influx of EU funding, which could sustain a favorable risk premium for HUF assets. Consensus seems aligned on the July action while the potential for further rate cuts later in the year remains high, should the external environment remain stable. The current EUR/HUF range of 350-360 suggests a cautiously optimistic market, despite looming international tensions that could disrupt this outlook.
Key Takeaways
- 01NBH likely to cut rates by 25bps in July, targeting 5.75%.
- 02Expectation of lower inflation supports rate cut trajectory.
- 03Potential for further easing if conditions remain favorable.
- 04EUR/HUF trading range of 350-360 suggests market stability.
Full Analysis
What the desk is arguing
The desk expects the NBH to proceed with a 25bps rate cut on July 21, reducing the base rate to 5.75% as part of a broader easing cycle. This aligns with ongoing trends of stabilizing inflation and available EU funding contributing to a generally positive outlook for Hungary.
With the central bank's previous commitment and the supportive external environment, we could see further cuts beyond July, potentially driving the terminal rate to between 4.75% and 5.00%. As such, the incorporated risk premium around the HUF should remain benign if these conditions hold.
Where it sits in our coverage
Currently, the consensus target for EUR/HUF stands at 1.075, reflecting the market's expectations for the Hungarian economy’s performance and potential euro adoption plans:
The desk's forecast for a sustained easing cycle aligns with jpmorgan’s more bullish stance but sits slightly lower than bofa’s more cautious target.
How other firms see it
Most firms like jpmorgan are optimistic on the potential for further easing from the NBH given the recent economic data. Conversely, bofa remains cautious, indicating a divergent view that reflects varying assessments of the risk landscape in Hungary.
Related currency pairs that may reflect similar dynamics include EUR/USD, which aligns with expectations of the ECB's rate path, and HUF/CHF, providing insights into regional risk factors influencing the Hungarian currency.
Market Implications
Watch for EUR/HUF to maintain levels between 350-360 as the market anticipates the upcoming rate decision. A successful rate cut could build momentum for further easing and attract more inflows, potentially strengthening the HUF.
From the original
Articles National Bank of Hungary preview: Next, please! Published 10:21 Hungary Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The next step of Hungary’s “mini rate cut cycle” is around the corner. Recent market turmoil hasn’
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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.
National Bank of Hungary review: All eyes on the next staff forecast
The desk projects further monetary easing by the National Bank of Hungary, anticipating three additional rate cuts in the coming months. Following the recent cut to 5.50% as part of a planned 'mini cycle' of reductions, markets are shifting their expectations as inflation appears manageable and EU funds are on track to be deployed. Per the full note from ING, ongoing geopolitical tensions and local energy concerns may limit the forint's recovery, but we expect a positive outlook as these are thought to be temporary obstacles.