National Bank of Hungary review: Everything is going to plan?
At a Glance
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 , 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.
Key Takeaways
- 01The NBH cut its base rate to 5.75%, initiating a 'mini cycle' of rate cuts.
- 02Further cuts are anticipated later this year, potentially lowering rates to between 4.75% and 5.00%.
- 03Stable local economic conditions and access to EU funds support the outlook for the HUF.
- 04Increased geopolitical risks could impact market sentiment and asset stability.
Full Analysis
What the desk is arguing
The desk believes the successive rate cuts by the NBH indicate a strong commitment to sustaining economic growth while managing inflation. As outlined in the commentary, the bank's decision reflects a favorable local economic backdrop and a clear pathway toward further cuts later this year.
Supporting this view, the commentary notes that the NBH's rate was cut by 25 basis points, and a forecast suggests the base rate could approach 4.75% to 5.00% by the end of the year. This aligns with expectations of a broader 'midi' cut cycle, potentially involving three or four additional rate reductions as market conditions allow.
The alternative narrative would suggest a potential market overreaction to global pressures, which could destabilize HUF assets. However, the NBH's ability to manage its risk premium and maintain EU funding confidence supports a more stable outlook.
Where it sits in our coverage
Our consensus target on the euro/hungarian forint (EUR/HUF) outlook remains at 1.075, with forecasts from jpmorgan at 1.10 (Mar-26) and bofa at 1.04 (Mar-26).
This aligns closely with the desk's stance, suggesting a more bullish position on the HUF compared to lower target forecasts that indicate a stronger euro. Our view points to an ongoing rate cut trajectory that could mitigate local volatility while attracting foreign investment, positioning the desk at the higher end of the spread at this time.
How other firms see it
There is a consensus among firms like jpmorgan that rate cuts will be favorable for the HUF, reinforcing their bullish stance. In contrast, bofa takes a more cautious view, suggesting that external volatility may cap potential gains.
Key related pairs to monitor include the EUR/USD dynamic and how shifts in the global monetary landscape impact the HUF in this context. Additionally, developments within the ECB policy framework are pivotal to understanding future rates and investment flows.
Market Implications
Watch for the EUR/HUF pair's movements around the 1.075 level, as this may reflect market sentiment toward the NBH's rate-cutting trajectory. Position adjustments could be observed as traders react to these cuts and related economic data releases.
From the original
Articles National Bank of Hungary review: Everything is going to plan? Published 15:20 Hungary Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download In line with the telegraphed 'mini cycle', the National Bank of Hungary continued to cut rates in July. The
Related speeches
4 itemsNational 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.
National Bank of Hungary preview: Don’t lose all hope for cuts
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.