MNI NBH Preview - November 2024: A Prolonged Pause
Executive Summary:
- The National Bank of Hungary is expected keep its base rate unchanged at 6.50%, with the sharp selloff in HUF likely to prompt a hawkish reaction in central bank communication.
- While a rate hike is seen as highly unlikely, the Bank could signal that an increase to the base rate was among the options discussed this month, while the introduction of new liquidity tightening tools also remains a possibility.
- Sell-side calls for another rate cut before year-end have dwindled, with the base rate now expected to be held steady for the remainder of the year.
See the full Preview, with a summary of sell-side analyst views, here:
Since the previous rate decision, Hungary’s risk profile has primarily been characterised by HUF weakness. The forint has been among the weakest performing EM currencies since the election, losing close to 4% against the dollar. Meanwhile, the rally in EUR/HUF since the start of October has seen the cross reach its highest level since December 2022, breaking through a number of resistance levels in the process. Despite the seemingly more benign picture, it is FX instability rather than inflation data that will drive monetary policy decisions moving forward.
Given that money markets have already priced out further rate cuts before year-end, the question is whether the central bank will choose to communicate the possibility of a rate hike at the November meeting to curb a further slide in HUF. Alternatively, the Bank could decide to accompany its ‘hold’ decision with familiar rhetoric – stating that the base rate may remain at the current level for an extended period and that a careful and patient policy approach is justified.