MNI NBH Preview - Oct'24: Steady as Hawkish Guidance Picks Up
Executive Summary:
- The National Bank of Hungary is expected keep its base rate unchanged at 6.50%, in-line with guidance from Deputy Governor Virag that a pause in the rate cut cycle will be considered beyond October.
- Rising oil prices and a re-pricing of Fed rates helped EUR/HUF rally to and above 400.00, which will invite caution from policymakers given the NBH’s sensitivity to deteriorating investor sentiment.
- Among sell-side, calls for another rate cut before year-end are being made with far less conviction, with an expected pick-up in inflation in the coming months further narrowing the scope for additional easing.
See the full preview, with a summary of sell-side analyst views, here:
Deputy Governor Barnabas Virag has sought to stifle the downward trajectory of the forint by stepping-up the central bank’s hawkish guidance. “The NBH may not only pause interest rate cuts in October,” Virag said at a conference, adding that “If the external environment and inflation outlook justify, the base rate may stay unchanged for a sustained period, raising our interest premium.”
Even before Virag’s comments, money markets had been pricing out further rate cuts before the end of the year due to the forint’s decline. 3x6 HUF FRAs gained around 30bps from the start of the month to October 17. The contract, which captures rates until year-end, now only implies ~20bps of cuts in the next three months. Meanwhile, analysts are acknowledging the increased risk of steady policy rates through to 2025.