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MNI NBH POV: Broad Forint Weakness Unlikely to Deter NBH from Expected Easing

HUNGARY
  • Short term HUF performance will likely continue to be a function of the global picture with the NBH almost certain to deliver another 100bps effective rate cut next week in order to converge the rate to the base rate in September. Beyond this, there is little consensus among the sell-side regarding the path of the base rate and, therefore, domestic factors and monetary policy could re-emerge as key drivers of the forint.
  • Following this week’s broad consolidation just above the 382.00 mark, EURHUF edged higher for the majority of Thursday’s session and breached the upper limit of the week’s range, above 384. Though the forint has weakened more than its CE3 peers against the euro since the beginning of Q3, EURHUF remains within a range that NBH officials are likely to deem as acceptable. However, particular volatility of the currency to swings in global market sentiment will be of concern, with further HUF weakness amid stubbornly-high inflation undesirable – volatile risk appetite was noted in the previous NBH policy statement, though the central bank expect disinflation to accelerate.
  • The NBH may use this juncture to provide updated forward guidance, however, a number of risk-off concerns such as the Chinese property sector, European natural gas prices and uncertainty over DM central bank rate paths could prompt the NBH to act with a greater degree of caution ahead.
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