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Executive Summary:
- The National Bank of Hungary is widely expected to moderate the pace of rate cuts from 75 to 50bps due to a substantial deterioration in global risk sentiment since the previous rate-setting meeting and associated HUF weakness.
- While inflation data for March came in broadly in-line with expectations, Deputy Governor Virag has said monetary policy is entering a “new phase” involving a slower pace of rate cuts.
- Among sell-side, all of the analyst views we have previewed in this document are expecting a 50bp cut, which would take the base rate to 7.75%. The rate path beyond Q2-2024, however, lacks clear consensus.
See the full MNI Preview, with a summary of sell-side analyst views, here:
A slowdown in easing pace has been well-guided by Deputy Governor Barnabas Virag. He said, “We’ve entered a new phase of monetary policy,” citing financial risks that have led to a weak forint. “In the second quarter, the rate-cut pace will slow.” The official reiterated that expectations for the base rate to be within the 6.50-7.00% band by the end of June are realistic, a range which is consistent with smaller 50 and 75bp rate cuts moving forward.
Since the previous MPC meeting, inflation data for March came in a touch above expectations, rising 0.8% M/M (Est: +0.6%) and equating to a year-on-year print of +3.6% (Est: +3.5%; Prior: +3.7%). Perhaps more importantly for monetary policy, forint developments over the past month justify a more cautious approach to easing. While the currency initially gained against the euro at the beginning of March, hawkish Fed repricing following the latest set of US inflation data and worsening geopolitical tensions in the Middle East resulted in a significant deterioration in risk sentiment. Though EUR/HUF sits ~0.6% lower compared to levels seen at the March MPC meeting, NBH officials will be concerned over the prospect of additional HUF weakness if it were to maintain a less-hawkish rate cut pace, particularly as the 1.8% rally in EUR/HUF following the US data highlights the forint’s high beta to swings in global sentiment.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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