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ING Expect Policy Rate to End Year at 11%, EURHUF to Move Toward 370

HUNGARY
  • In ING’s view, the NBH will cut both repo and deposit rates by 100bps in October, leaving room for market rates to adjust lower, but will only cut the base rate by 100bps in November and December. They therefore expect the policy rate to end the year at 11%.
  • The NBH’s assurance that the cutting cycle will not be accelerated did not result in a turnaround in EURHUF as ING expected. However, their market view remains unchanged. In case of further forint weakening, they expect the central bank repeat some hawkish statements, trying to push against HUF underperformance versus CEE peers.
  • They think FX carry should continue to be the main positive driver for the HUF, supported by an improving current account, a record decline in gas prices, and despite cuts by a cautious central bank, overall pushing EURHUF closer to 370.
  • Base effects and favourable weather conditions will lead to a significant positive contribution from agriculture to overall growth, lifting the economy out of the technical recession in the second quarter, ING say. They maintain their full-year GDP growth forecast of 0.2%.
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