Hungary's Central Bank to Maintain Base Rate at 13%, Eyes on Effective Rate Amid Forint's Performance

Hungary: National Bank of Hungary expected to keep the base rate at 13%

The highlight over the next week in the EMEA region will be the upcoming rate decision by the National Bank of Hungary. With the central bank keeping the market and price stability issues separated, we don't see any reason for the Monetary Council to change its mindset regarding the base rate. While inflation's direction of travel has been favourable, it remains elevated and we therefore expect the NBH to keep the base rate at 13%, pushing the expected change into the not-too-distant future.

In contrast, the decision regarding the effective rate will be exciting. Should we see renewed weakening in the HUF, we can imagine the central bankers sitting on their hands and keeping the effective rate unchanged. However, with the forint strengthening since the June inflation data release, we're instead betting on the continuation of the 100bp rate cut cycle. As a result, we see the effective rate being lowered to 15%. Meanwhile, we're also expecting to see strong labour market data – much like the rest of the EU – as shortages keep wage growth elevated and deter companies from lay-offs despite the challenging economic environment.

 

Key events in developed markets next week

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