HUF: It's all about the nuances – Commerzbank

In addition to the general development linked to its high beta with euro movements, today's interest rate decision by the Hungarian central bank (MNB) is also of interest for the Forint. This is mainly due to the nuances in the statements and less due to the interest rate decision per se, Commerzbank FX analyst Antje Praefcke notes.

A refrain from a cut to be positive for the Forint

“The majority of analysts surveyed by Bloomberg expect the MNB to cut the key interest rate by 25 basis points to 6.75% today anyway, thus continuing the slower pace of its interest rate cut cycle that it has been displaying since June, because the overall inflation rate fell slightly more than expected in June from 4.0% to 3.7%.”

“But, the exponentially smoothed month-on-month change actually accelerated in June to a record 0.5% for ‘tax-adjusted core inflation’ and 0.6% for ‘demand-sensitive inflation’. The FX market is concerned about the fact that the doves in the MNB could push for further interest rate cuts during the year or that the government could push for interest rate cuts in view of the further weakening of the real economy and the need to make savings in the budget.”

“Therefore, the nuances of the MNB meeting today are likely to be important. If the market's concerns are confirmed by the MNB's statements, the Forint could suffer. On the other hand, it would be a positive surprise if the MNB were to take a pause today and refrain from a rate cut. The Forint would benefit from a decision by the MNB to remain restrictive accordingly.”