Hungarian Forint: MNB pause supports HUF – Commerzbank

Antje Praefcke at Commerzbank highlights that the Hungarian Central Bank is widely expected to leave its key rate at 5.50% and possibly lower its inflation target to 2.5%. With headline inflation near 1.3% and monthly pressures still rising, a pause in the easing cycle and a less dovish stance are seen as providing short-term support for the Forint.

MNB caution seen aiding HUF

"In August, the Hungarian Central Bank (MNB) cut its key interest rate by 25 basis points to 5.50%. It had previously signaled that there was room for further easing measures over the summer, but did not commit to any such measures in August, emphasizing instead that a decision on the future interest rate path would be made in September based on updated forecasts. This made an interest rate cut less likely today and shifted the MNB’s stance away from a “dovish” stance."

"In early September, media reports citing unnamed sources at the MNB suggested that the central bank intended to pause its rate-cutting cycle at the September 22 meeting and possibly lower its inflation target from 3.0% to 2.5%. Headline inflation stood at just 1.2% yoy in July and at 1.3% in August."

"These low rates actually offer the MNB a favorable window of opportunity to lower the inflation target today without having to immediately tighten monetary policy again, but rather simply to pause."

"However, inflation is still rising notably on a month-on-month basis, and the drought and high energy prices are increasing inflation risks. The key interest rate is generally expected to remain unchanged at 5.50% today."

"We expect the same, as a pause in the rate-cutting cycle gives the MNB time to monitor further developments and signal to the market that it remains vigilant regarding potential external price risks amid a global environment of rising inflation rates. At the same time, the market could adjust to the new inflation target, should it be changed, and - just like the MNB - wait for the government’s budget plans in early October."

"What will be important for the forint today is whether the MNB continues to take a cautious stance regarding further interest rate cuts over the course of the year - even if these cannot ultimately be ruled out. A less dovish stance by the MNB would provide short-term support for the forint."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)