Hungarian Forint: No case for cuts as inflation risks rebuild – Commerzbank

Commerzbank’s Tatha Ghose expects the MNB to keep its base rate at 5.50% and argues that Hungary’s recovering real economy and re‑accelerating seasonally adjusted inflation momentum do not justify easing. With a large fiscal deficit, a lower future inflation target and ERM II ambitions, he sees scope for tighter policy and warns that ongoing rate‑cut talk is holding back HUF’s next leg higher.

MNB stance seen too loose for HUF

"Hungary's National Bank (MNB) is unanimously expected by analysts to leave its base rate unchanged at 5.50% later today; we hold the same view. The crucial point of interest will be whether or not MNB will still signal rate cuts as a realistic option for November or December."

"Our preferred seasonally-adjusted month-on-month measures, including the rate of change of MNB’s underlying core indicators, have re-accelerated from disinflationary territory to beyond target. Monetary policy should react to this prospective momentum, not take comfort from favourable base effect."

"Fiscal policy reinforces the same conclusion. IMF warned about potential 7.5% of GDP fiscal deficit this year, and no convergence back with the Maastricht ceiling in the medium-term under unchanged policies. Such a deficit outlook is already a key pro-inflationary factor."

"Yet further rate cuts appear to be still under consideration. Until this changes, HUF will not be ready for its next major leg up, in our view."

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