National Bank of Hungary review: All eyes on the next staff forecast
At a Glance
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.
Key Takeaways
- 01Expect three more rate cuts in Hungary, bringing the base rate to 4.75% by late 2026.
- 02Current economic challenges may be temporary, with projections for limited inflation threats.
- 03EUR/HUF has weakened significantly, reflecting market sentiment and regional volatility.
- 04EU fund deployment expected in Q4 could provide a stability boost.
Full Analysis
What the desk is arguing
The desk maintains that the National Bank of Hungary is on a continued path of easing, influenced by pre-announced plans and current economic conditions. As indicated in the commentary from ING, three additional rate cuts could bring the base rate down to 4.75% by the end of 2026, reflecting a sustained commitment to monetary support.
Notably, despite challenging conditions such as elevated geopolitical risks and energy supply issues, the forint has shown resilience. The commentary highlights that EUR/HUF moved closer to 366, indicating a weaker currency position, yet the desk views this as a transient situation linked to current market positioning rather than a long-term trend.
Where it sits in our coverage
Consistent with our analysis, we anticipate a base rate target of 4.75% by late 2026, with firms such as jpmorgan predicting a similar trajectory at 4.80%, while bofa aligns with a cautious approach forecasting 5.00%. Given these projections, our desk's views are situated more optimistically within the wider consensus.
How other firms see it
Among aligned firms, jpmorgan and dtc share a similar dovish outlook on the Hungarian monetary policy, suggesting further cuts will align with a stabilizing economic environment. In contrast, some firms remain wary, with bofa expressing skepticism about aggressive easing amidst external pressures.
Close attention should be paid to the movements of EUR/USD, which might reflect sentiments towards the Eurozone and its interconnectedness with Hungarian policy adjustments. Additionally, fluctuations in energy prices will be crucial in gauging potential impacts on inflation and broader economic stability.
Market Implications
Watch for EUR/HUF around the 366 level as a critical threshold. If it moves further, this could signal deeper market concerns impacting the forint. Additionally, any announcements or movements related to EU funds would influence trader sentiment significantly.
From the original
Articles National Bank of Hungary review: All eyes on the next staff forecast Published 14:00 Hungary Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download In line with the pre-announced 'mini cycle', the National Bank of Hungary continued to cut rates in A
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The desk anticipates a modest 50 basis point rate cut by the National Bank of Hungary (NBH) next week, driven by sentiment shifts from improved inflation data and geopolitics. Per the full note from ING, the forecast has evolved to expect an upcoming cut bringing the base rate to 6.00%, with a potential cumulative easing of up to 100 basis points by year-end due to a more dovish policy backdrop. This dovish sentiment contrasts with past expectations of inflation persisting above 5%, now adjusted to remain below 4%. Upcoming movements in the forint could reflect these changes in monetary policy as traders adjust their positions ahead of the June 23 decision.
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.