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HUF: EURHUF Reverses Session Gains as Varga Retains Hawkish Tone

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The comments from Varga are broadly in-line with previous rhetoric, but ongoing hawkishness should continue to provide a broader tailwind to the forint, explaining the fade in EURHUF from this morning’s high. Yesterday’s above-consensus CPI print further narrowed the scope for rate cuts through 2025, but HUF reversed initial gains inspired by the data as the session progressed, potentially due to concerns of a recessionary impact of inflation.

  • Varga mentioned in his comments today that the central bank will present proposals to rein in services inflation while the government announced measures yesterday to combat high food price inflation – both of these components of the CPI basket more than offset the fall in fuel prices in February, accounting for the 0.1ppt uptick in the headline figure.
  • Varga also said the Bank will cooperate with the government. This suggests that the introduction of government measures to tackle inflation (mentioned above) will face less resistance this time around compared to when former Governor Matolcsy repeatedly and publicly criticised the government for taking 'unorthodox measures' to fight inflation.
  • Commerzbank noted recently that a big part of the inflation acceleration occurred because the government began to criticise the central bank's monetary policy last year, which then triggered exchange rate depreciation, which in turn created FX pass-through. They also note that proposed government controls "are unlikely to have a discernible impact on the national inflation rate".
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The comments from Varga are broadly in-line with previous rhetoric, but ongoing hawkishness should continue to provide a broader tailwind to the forint, explaining the fade in EURHUF from this morning’s high. Yesterday’s above-consensus CPI print further narrowed the scope for rate cuts through 2025, but HUF reversed initial gains inspired by the data as the session progressed, potentially due to concerns of a recessionary impact of inflation.

  • Varga mentioned in his comments today that the central bank will present proposals to rein in services inflation while the government announced measures yesterday to combat high food price inflation – both of these components of the CPI basket more than offset the fall in fuel prices in February, accounting for the 0.1ppt uptick in the headline figure.
  • Varga also said the Bank will cooperate with the government. This suggests that the introduction of government measures to tackle inflation (mentioned above) will face less resistance this time around compared to when former Governor Matolcsy repeatedly and publicly criticised the government for taking 'unorthodox measures' to fight inflation.
  • Commerzbank noted recently that a big part of the inflation acceleration occurred because the government began to criticise the central bank's monetary policy last year, which then triggered exchange rate depreciation, which in turn created FX pass-through. They also note that proposed government controls "are unlikely to have a discernible impact on the national inflation rate".