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RBC on NBH and HUF

HUNGARY
  • RBC bias is for the NBH to deliver a 50bps hike to the base rate and continue to put the emphasis on a longer tightening cycle, though RBC cautions that there is a sizable risk that they may reaccelerate the pace once again to +100bps as EUR/HUF trades above 400.
  • On the new economic projections, Deputy Governor Virag stated earlier this month that the 2022 CPI forecasts are likely to be revised higher and sees inflation peaking in Sep-Nov, with the convergence between the two policy rates likely to happen around the peak in inflation.
  • On the EU funds, the government has been making attempts (at least verbally) to find compromise on the stalemate with the EU, with Hungary’s deadline to respond to the EC’s letter of concerns by June 27.
  • For now, given the EU funds issue is unlikely to be resolved in the near-term, the situation will remain a drag on the currency, but RBC bias is that a compromise may be found later this year and hence analysts view for EUR/HUF to trend lower by year-end.
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