National Bank of Hungary review: Everything is going to plan?
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 source, 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.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
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.
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.
Risks to this view
Any escalation in geopolitical tensions, particularly in the Middle East, could lead to increased risk aversion, negatively affecting HUF assets. Additionally, if domestic political developments undermine confidence in EU funding, the expected rate cuts may be jeopardized.
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 Monetary Council will closely monitor developments in the risk premium, but we do not expect any further damage and anticipate more rate cuts Peter Virovacz , Frantisek Taborsky and Zoltán Homolya The National Bank of Hungary cut the base rate by 25bp to 5.75%.
We look for more rate cuts this year 5.75% Key interest rate (-25bp) As expected ING's policy view: We see scope for further cuts in autumn The National Bank of Hungary cut the base rate from 6.00% to 5.75% on 21 July, as had been signalled at the June rate-setting meeting when Governor Varga announced a 'mini rate cut cycle' throughout the summer. Looking ahead, if position-driven profit-taking proves to be temporary, as we anticipate, and local politics deliver on previous commitments regarding the euro adoption plan, EU funding developments and long-term fiscal adjustments, the risk premium for Hungarian assets could fall again. In this case, we forecast a 'midi' rate cut cycle involving three or four further rate cuts following July's move.
The biggest issue now is that the recent flare-up in the Middle East has increased the risk of miscalculation. At a local level, everything is going according to plan, with €16.4bn in EU funds being made available to Hungary. While it is still difficult to be certain, we are forecasting a base rate of between 4.75% and 5.00% by the end of this year and a terminal rate of 4.00% by the end of 2028.
ING’s market views The NBH’s confirmation of its earlier forward guidance, despite elevated volatility and pressure on HUF assets amid the global risk-off sentiment, should reassure markets that the local story is unchanged. The reaction after the press conference suggests investors have accepted the dovish signal, with rate cuts returning to market pricing. We expect this to continue, supported by an unchanged fundamental backdrop after the April elections and repeated downside inflation surprises.
With markets having outpriced around 40bp of easing and the implied terminal rate back near 4.75–5.00%, we expect pricing to shift toward a more dovish view after today’s meeting, closer to our medium-term forecast of 4.00%, while curve steepening continues. This remains highly dependent on the global backdrop, where visibility is limited. However, any global relief should deliver the strongest gains in the HUF market, in our view, as Hungarian rates led the EM sell-off and the central bank has just confirmed that the domestic policy story is unchanged.
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