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Goldman Sachs Revise Lower 12-Month EUR/HUF Forecast to 365

HUNGARY
  • Goldman Sachs say the macroeconomic vulnerabilities that featured heavily in HUF discussions over the last year have started to turn in a better direction, partly due to lower energy prices relative to 2022.
  • Additionally, headline inflation is likely to have peaked, and Goldman Sachs estimate that the FX appreciation since October 2022 is worth an almost 3pp decrease in headline inflation. This also demonstrates the importance of the FX transmission channel for monetary policy.
  • Despite these improvements, core inflation remains elevated. To bring it down, sustained currency appreciation is likely to be required, which in turn calls for monetary policy to remain restrictive, which would keep carry elevated (given also low FX reserve levels).
  • Therefore, given improving external balances and the NBH's monetary policy objectives, Goldman Sachs think the forint is likely to deliver positive total returns in the medium term and revise lower their 12-month EUR/HUF forecast to 365 (from 370 previously). The main risk to this view is a premature dovish shift in policy and a renewed increase in energy prices.

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