The National Bank of Hungary is expected to moderate its easing pace to 50bps as policy enters a new phase.
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.
352 words