CEE & CCA week ahead: Hungary rate decision, Polish retail sales and Czech confidence
Next week, we anticipate a pivotal rate cut from the National Bank of Hungary (NBH) on Tuesday, marking the culmination of its mini rate-cutting cycle. This adjustment comes as inflationary pressures ease, although retail pressures in Poland from rising fuel prices could temper consumer spending. Per the full note from ing-think, heightened fiscal measures may have mitigated the impact of recent price increases. The desk emphasizes that the NBH's rate decision will serve as a significant indicator for further easing and could impact trading positioning in regional currencies.
What the desk is arguing
The desk views the upcoming Hungary rate decision as a critical marker for broader monetary policy shifts in the region. With inflation reportedly declining, a rate cut could symbolize the NBH's readiness to stimulate economic activity. Per the full note from ing-think, this could be the last step in the announced cycle, suggesting that the central bank might maintain a more accommodative stance moving forward.
Supporting evidence includes inflation trends that have shown signs of stabilization, offering the NBH room to ease rates. The expectation for a cut suggests a targeted reduction from the current 13.0% rate, aligning with the views from several analysts who note that household spending has remained resilient despite external pressures. This decision may also precede more pronounced adjustments depending on forthcoming economic indicators.
Where it sits in our coverage
The consensus target amid our analysis points at 1.075 for the EUR/HUF pair, with a range stretched between 1.04 and 1.12 by December 2026. Notable firm targets include: - jpmorgan: 1.10 - bofa: 1.04
This desk's view aligns closely to the mid-range on this call, with the jpmorgan target at the upper bound highlighting a cautiously optimistic outlook for EUR/HUF following the anticipated rate cut.
How other firms see it
The consensus among aligned firms such as jpmorgan supports a dovish outlook for the Hungarian currency, emphasizing a pronounced easing from the NBH. Conversely, bofa remains skeptical, advocating a more conservative approach amid lingering inflation threats.
Monitor EUR/HUF closely as the rate cut takes place, particularly in relation to upcoming economic prints from Poland and the Czech Republic, which may provide additional context on consumer spending trends.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Anticipate a rate cut from the NBH on Tuesday, signaling the end of the mini rate-cutting cycle.
- 02Polish retail sales data could reveal consumer behavior impacts from rising fuel prices.
- 03Potential for further easing in Hungary if inflation trends continue to stabilize.
- 04Market positioning will shift in response to the upcoming rate decision, impacting regional currency pairs.
Market implications
Watch for a decisive move in the EUR/HUF as the market digests any dovish signals from the NBH on Tuesday. A successful cut could strengthen the forint, while any signal of hesitation could prompt volatility around the 1.075 level.
Risks to this view
A reversal of this call could occur if inflation unexpectedly spikes due to external factors, forcing the NBH to delay or abandon its planned cut. Additionally, significant adverse movements in Polish retail sales data could alter traders' perceptions of regional consumer strength, leading to shifts in euro demand.
Articles CEE & CCA week ahead: Hungary rate decision, Polish retail sales and Czech confidence Published 10:57 Czech Republic Hungary Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Next week, we're looking for an expected rate cut from the National Bank of Hungary at Tuesday's meeting. Key data releases from Poland and the Czech Republic are also in focus, including retail sales, labour market figures, confidence indicators and details of second-quarter GDP prints Adam Antoniak , Peter Virovacz and David Havrlant We're expecting Tuesday to mark the last step in the NBH's mini rate-cutting cycle, but we don't think the story will end there Poland: Retail sales to feel the impact of higher fuel prices Monday brings July retail sales data. The standard VAT rate on petrol and diesel (23%) was reinstated at the beginning of July following a temporary reduction to 8%.
Together with another increase in crude oil prices, this pushed up retail fuel prices at the pumps. Given the relatively inelastic demand for fuel, particularly during the summer holiday season, it likely weighed on demand for other goods, as a larger share of household budgets was allocated to transport. Despite the fuel price shock, the impact on consumer demand appears to have remained limited so far, partly owing to fiscal measures that moderated the extent of price increases at filling stations in the previous months.
Tuesday sees the release of the registered unemployment rate, which we expect to have remained unchanged from June. However, the Ministry of Family, Labour and Social Policy reported a slight increase in the number of unemployed people last month, which could result in a marginal rise in the registered unemployment rate. Hungary: Rate cut expected as focus shifts to further easing The final interest rate decision of the summer on Tuesday is approaching, marking the last step in the previously announced mini-rate-cut cycle.
However, we are almost certain that this isn’t the end of the story, and that the mini-cycle will evolve into a midi-cycle. The July inflation data clearly sets the stage for this. At the same time, we doubt the August interest rate decision will concern anything other than the current situation.
The central bank has made it quite clear on countless occasions that the decision on whether to continue the easing cycle will be made in light of the September Inflation Report. The 1.2% inflation rate in July falls outside the uncertainty range of the National Bank of Hungary's June forecast, meaning the overall inflation picture has clearly improved. However, this is unlikely to prompt NBH Governor Mihály Varga and his colleagues to draw hasty conclusions or make premature announcements.
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