MNI POLICY: NBH To Consider Slower Pace Of Cuts

The National Bank of Hungary will discuss slowing its pace of rate cuts to 25 basis points from its 50-basis-point reduction in May at its meeting on Tuesday, as forint depreciation and delays to Fed easing combine with the absence of clear ECB forward guidance and fallout from European parliamentary elections to add to uncertainty, MNI understands. (See MNI EM POLICY: NBH Set For Second 50Bp Cut, H2 Outlook Less Clear)

Reflationary risks ahead, from base effects to services prices and wages, will also add weight to arguments in favour of a slowdown in cuts.

Forward guidance for the second half of 2024 is unlikely to repeat the format adopted earlier this year of providing a probable interest rate range. Instead, the NBH will continue to emphasise that there is little room for manoeuvre on rates in the months ahead.

Deputy governor Barnabas Virag said in May that the base rate - now 7.25% - is likely to end up somewhere between 6.75% and 7.00% at the half-way point this year.

With inflation close to the NBH’s forecast expectations despite a small increase in the rate in May, policymakers’ focus will remain on making steady, sustainable progress towards the inflation target, without surprising investors.

Hungary’s current account balance continues to improve, with May’s data likely to beat expectations. The outlook for exports is also stronger, offering encouragement to manufacturing, and providing some longer-term support for the currency.