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.
Executive summary:
- The National Bank of Hungary are widely expected to increase the pace of monetary policy easing with a 100bp cut to the base rate, taking it to 9.75%.
- The more aggressive easing move follows guidance from Deputy Governor Virag earlier this month, where he strongly hinted that conditions facilitate a cut of greater magnitude than the 75bps delivered in the previous three meetings.
- While favourable inflation developments, rising real rates and the partial disbursement of frozen EU cohesion funds may justify the decision, risks remain surrounding heightened geopolitical tensions and poor forint performance.
See the full MNI Preview, with a summary of sell-side analysts views, here:
In December, the National Bank of Hungary cut its key interest rate by 75bps to 10.75%, stating clearly that the pace of rate cuts may be increased if internal and external developments allow. Since then, headline inflation has once again crossed below expectations, rising 5.5% Y/Y, -0.3% M/M in December (Est: +5.9% Y/Y; -0.2% M/M). Following this, Deputy Governor Virag Deputy explicitly stated that the current 3-6 months forward market expectations, which sees the policy rate in the 6-7% range by mid-2024, seem realistic. He added that a 100bp cut will again be considered when the central bank meet next. Given the faster-than-expected pace of disinflation, a more aggressive easing path may be warranted. Indeed, December inflation data was below the NBH’s own forecast, with real rates remaining restrictive at around +5.25%.
Recent HUF depreciation will be a cause for concern for the central bank. EUR/HUF has bounced over 3% from the mid-January lows to reach its highest level since October 2023, as market pricing of a more dovish policy mix, rising geopolitical concerns and the aforementioned tensions between the Hungarian government and both the central bank and the EU all weigh on forint performance. Given the volatility, the NBH are likely to refrain from providing explicit guidance over its rate path, and instead stick to its stance that decisions will be made on a meeting-by-meeting basis. Nevertheless, positive inflation developments will warrant a 100bp cut at this meeting.
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.