Commerzbank’s Tatha Ghose reports that Hungary’s MNB kept rates at 6.25%, citing Iran-related inflation risks but acknowledging room to cut after a strong Forint rally. With improved inflation dynamics and EUR/HUF strength, he expects a couple of cuts in coming months, sees a 50 bp move as more likely than 25 bp, and forecasts EUR/HUF around 360 next quarter.

Rate cuts seen with stable forint

"The forint's post-election appreciation, gaining over 7% year-to-date and making it the clear top performer in CEE, combined with notable improvement in underlying inflation indicators (seasonally-adjusted month-on-month changes in core HICP) are strong enough that MNB will likely find room for a couple of rate cuts in coming months."

"Hungary's National Bank (MNB) kept its key interest rate flat at 6.25% yesterday, a widely anticipated decision consistent with its communicated guidance to wait-and-see until updated June projections were available. This cautious approach is necessitated by increased inflationary risks stemming from the Iranian conflict and high global energy prices."

"However, the MPC acknowledged the clear rate cutting room created by a significant forint rally (which MNB chief, Mihaly Varga, attributed to a decline of risk premia – which may be correct, but just to be clear, it is an exogenous rally produced by the election outcome)"

"Deputy Governor Zoltan Kurali had previously signalled that a stronger forint could enable rate cuts, pending evaluation of updated inflation forecasts in the June Inflation Report. Varga basically repeated the same view yesterday. MNB is satisfied with the improved inflation outlook, now described as “more moderate” (despite current global energy price concerns)."

"The forward market is discounting a 25bp rate cut in 3-6 months – we think that 50bp is more likely. We do not anticipate a negative impact on the exchange rate from 50bp lower interest rates. We expect EUR/HUF to trade around the 360.0 level over the coming quarter."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)