• The Hungarian central bank (MNB) decided to cut its key rate by 100bp to 8.50% at today’s monetary policy meeting. We had expected a 50bp cut - this was also the consensus expectation.
  • We believe the positive sentiment in CEE financial markets contributed to the largerthan- expected rate cut. We expect more rate cuts to be delivered over the next three to six months – especially if HUF remains stable. The market pricing suggests roughly 80bp worth of cuts to be delivered over the next six months.
  • The Hungarian economy is in deep recession and there is no real inflationary pressure. The Hungarian forint has firmed up significantly recently on an improved global financial environment, foreign demand at bond auctions has strengthened, and Hungary has successfully re-entered the Eurobond market. Overall, these factors were exploited by the MNB to deliver the 100bp cut.

There was a very limited reaction in FX markets after the rate decision, which would surely make the MNB comfortable with its large rate cut. This should increase expectations that more cuts are in the pipeline – especially if EUR/HUF remains stable going forward. The Hungarian forward rates suggests another 100bp worth of cuts to be delivered over the next six months, but we will get more information about this when the press statement is released (today at 15:00 CEST).