HUF: Close call – Commerzbank

The majority of analysts expect Hungary’s National Bank (MNB) to leave its base rate unchanged at 6.75% at today’s meeting. A minority expect another 25bp rate cut. Most observers predict that the central bank will cut rates by another cumulative 25-50bp before the easing cycle is truly paused; FRA’s price in c.30bp lower rates in 3-6 months’ time, which basically represents some split of views between the 25bp and 50bp options, Commerzbank’s FX strategist Tatha Ghose notes.

MNB is not set to add any pressure on the exchange rate

“Regardless, observers do not anticipate the next rate cut right away. This makes sense based on the CB’s July MPC minutes (a pause was already considered then). Since then, Hungary’s inflation data have not been impressive – core HICP dynamics have remained the most elevated among eastern European countries.”

“But at the same time, Q2 GDP was a disappointment; and conditions have got more dovish in the more developed countries, globally (the Fed view has been totally altered). It may therefore make sense to implement any remaining rate cuts upfront and then, end the easing cycle once and for all.”

“These conflicting considerations make today’s outcome a close but interesting call. On balance, we lean towards no change. This is because EUR/HUF has returned to near 395.0 from being nearer 392.0 a few sessions ago, and we do not reckon that MNB will fancy adding any pressure on the exchange rate.”