Why low Hungarian inflation is unlikely to lead to an immediate rate cut
The desk assesses that the low inflation levels in Hungary, recently at 1.3% year-on-year, are insufficient to prompt an immediate interest rate cut by the National Bank of Hungary. Per the full note from ING, despite positive trends in inflation, external volatility poses significant risks that could delay policy easing until potentially October. This sentiment is reflected amidst the growing concerns surrounding elevated energy prices and a fragile forint, suggesting that central banks may have to adopt a more cautious approach to monetary policy than previously anticipated.
What the desk is arguing
The current low inflation in Hungary is unlikely to catalyze any rate cuts in the near term due to rising external risks. Per the full note from ING, inflation has seen a minor recovery, yet factors like the vulnerability of the forint and increasing energy prices overshadow these developments. Notably, inflation had dipped to 1.3% year-on-year after a period of disinflation, but the backdrop of geopolitical uncertainties and market volatility implies that a rate cut might not come until the external environment improves significantly.
The Hungarian Central Statistical Office reported a modest month-on-month price increase of 0.2% in August, aligning with market expectations but raising concerns regarding services inflation. The combination of these inflationary pressures and an uncertain external outlook leads the desk to suggest that a wait-and-see approach will likely dominate the Monetary Council's decisions in the upcoming months.
Where it sits in our coverage
Our current consensus target for the Hungarian forint is 1.075, with a range spanning from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 by Mar26 - bofa: 1.04 by Mar26
The desk's view aligns with jpmorgan, sitting near the upper end of the consensus range which reflects a belief in a gradual stabilization of the forint as external conditions improve.
How other firms see it
Firms like jpmorgan are aligned with the desk's cautious stance regarding the forint, highlighting potential upside as economic conditions stabilize. Conversely, bofa appears more skeptical about the forint's resilience, projecting a lower target amidst ongoing geopolitical tensions.
Relevant indicators to monitor include the EUR/HUF trajectory and external risk factors affecting regional currencies, as shifts in the geopolitical landscape may lead to recalibrations in trader sentiment and central bank strategies.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Hungary's inflation at 1.3% is stable but unlikely to trigger immediate rate cuts.
- 02External geopolitical risks and energy price hikes cast doubt on monetary easing prospects.
- 03Market volatility may delay any decision on interest rate revisions until at least October.
- 04The consensus target for the forint points towards gradual stabilization, reflecting cautious optimism.
Market implications
Traders should monitor the forint closely for any signals of instability, particularly around the 1.075 level, which is critical for immediate market confidence. Any improvements in the geopolitical landscape could prompt reassessment of rate cut timing, especially as October approaches.
Risks to this view
A significant deterioration in Hungary's external economic conditions or another spike in energy prices could undermine the current outlook and lead to a quicker-than-expected rate cut. Additionally, adverse shifts in geopolitical stability could force traders to recalibrate their positions against the forint.
Older quick take Quick take Published 13:18 Hungary Why low Hungarian inflation is unlikely to lead to an immediate rate cut As expected, inflation has started to increase again in Hungary. While the overall picture remains positive, the number of upside risks is growing rapidly. If the external situation remains volatile until the next interest rate decision is made, a rate cut will have to be put on hold Hungarian inflation is still low, but external risks could scupper hopes of rapid monetary easing Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors Peter Virovacz Chief Economist, Hungary Zoltán Homolya Economic research trainee 1.3% Headline inflation (YoY) ING estimate 1.4% / Previous 1.2% Disinflation came to an end The price level in Hungary rose by 0.2% in August 2026 compared to the previous month, in line with market consensus, according to the latest data released by the Hungarian Central Statistical Office (HCSO).
This marked a resumption of inflation accelerating after three months of deceleration. While the increase was minimal, the headline indicator stood at 1.3% year-on-year in August, following an acceleration of 0.1ppt. The latest inflation data paints a more favourable picture than the National Bank of Hungary's June forecast.
However, the acceleration in services inflation, the vulnerability of the forint, the yield environment, and the significant rise in energy prices compared to June already cast a shadow over this. If the external environment does not substantially improve in the coming weeks, the Monetary Council may delay a rate cut until October. Nevertheless, we anticipate some positive changes in the geopolitical situation by the end of the year, which could create an opportunity to reconsider rate cuts.
We forecast the base rate to reach 5.00% by the end of the year. Main drivers of the change in headline CPI (%) Source: HCSO, ING "> Source: HCSO, ING The details For the fourth consecutive month, food prices have fallen compared to previous months. Strong seasonal price changes were seen among unprocessed foods, resulting in a 1.3% month-on-month deflation in that category The weakening of the forint and rising energy prices have led to higher fuel prices.
However, a monthly price increase of 0.6% is surprisingly low compared to preliminary estimates The change in service prices continues to push inflation upwards. Within the services sector, we have seen more significant price increases, particularly for services that are sensitive to rising energy prices and the weakening of the forint. Travel to long-distance destinations, taxi fares, holidays abroad, and the transport of goods have all become more expensive The impact of the previously announced price increases was also felt in the other services sector.
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