HUF: National Bank of Hungary Expected to Continue Monetary Policy Normalization

HUF: No change in NBH's policy easing pace

The National Bank of Hungary (NBH) is scheduled to meet today. We expect the central bank to continue the normalisation of monetary policy despite recent market volatility, especially in the forint. At its June meeting, the central bank made a slight rebalancing in the order of factors that are affecting monetary policy. The updated forward guidance now puts the effects of international financial market developments on the domestic risk environment first, followed by incoming macroeconomic data and developments in the inflation outlook. All things considered, we expect the central bank to replicate the decision it made last month and cut the quick deposit tender rate by another 100bp, bringing the effective rate to 15%. Similarly, we anticipate 100bp cuts to the one-day FX swap tender and the overnight repo rate.

The Hungarian forint is gradually normalising following the sell-off, which affected the whole region. We see global momentum and market repricing as the main reasons for forint weakness as local conditions improve. The market sell-off has likely lightened the heavy long positioning and we believe the massive carry will once again attract market interest. In addition, we think the market is pushing NBH to cut rates at a faster pace and thus the hawkish tone should be a boost going back to 370 EUR/HUF.