The NBH is widely expected to slow down the pace of monetary easing with a 25bp cut to its base rate.
In May, the National Bank of Hungary cut its base rate by 50bps to 7.25%, maintaining the previous pace of easing and offering little in the way of new forward guidance. The NBH reiterated that decisions on any further reductions in the base rate will be taken in a “cautious and data-driven manner”. Emphasising this, the board stated that the “volatile financial market environment and the risks to the outlook for inflation continue to warrant a careful and patient approach.” Meanwhile, Deputy Governor Barnabas Virag stressed that market expectations of the mid-year interest rate within the 6.75-7.00% range seem realistic, effectively leaving the central bank with two choices this month: either a 50bp or 25bp cut.
Recent HUF instability argues for the latter. EUR/HUF is trading around 3% higher compared to levels seen at the last rate-setting meeting, with the cross within relatively close proximity to its year-to-date high found near the 400.00 mark. The risk-off tone across global markets and the unwind of popular EM carry trades has hampered sentiment across the CEE region, leaving the forint vulnerable to a dovish outcome of this MPC meeting.
