HUF: Another downside surprise in inflation – ING

This morning, inflation in Hungary for June showed a drop from 4.0% to 3.7%, roughly in line with the central bank's forecast and ours, but two-tenths below market expectations. The June print is the first inflation number after the National Bank of Hungary announced a pause in its rate cutting cycle, so we expect increased market attention, ING’s FX analyst Frantisek Taborsky notes.

More weakness for HUF

“While on paper we do not expect rate cuts in the second half of the year, it is clear that if conditions allow for it, the NBH will not hesitate to use them. The first inflation print opens the door, but the next few months may be more complicated given our expectation of a pick-up in inflation.”

“Yesterday's budget figures in Hungary showed a further deterioration, but at the same time, the government announced new fiscal tax measures to improve the budget this year and next. In our view, this could cover the fiscal risk we saw earlier and the current official target of a 4.5% of GDP government deficit could be achieved.”

“Yesterday's depreciation of the HUF was triggered more by the announcement of tax changes for banks and the sell-off in the stock market as a result. However, rates were already slowly sliding down yesterday and today's inflation print will very likely increase market bets on rate cuts in second half of the year. And this should result in more HUF weakness.”