Hungarian Forint: Crowded positions cloud fiscal outlook - ING

ING’s Frantisek Taborsky reports Hungary’s government has outlined a 2025 budget deficit target of 4.9% of GDP, down from 7.0–7.5%, relying on spending cuts, lower interest costs and new taxes. While the fiscal trajectory is seen positively, he warns positioning in Hungarian assets is crowded, leading to profit-taking and higher yields. ING remains structurally bullish but expects further correction.

Positioning risk versus fiscal improvement

"The Hungarian government yesterday presented a budget plan for next year with a deficit of 4.9% of GDP. The consolidation from this year’s 7.0-7.5% level would rely on cutting wasteful expenditure, reducing interest costs, reversing pre-election spending, and introducing new taxes. The 4.9% figure is in line with our expectations and roughly in line with market expectations."

"As we discussed here yesterday, the problem with the current narrative is crowded positioning. Although the market may be satisfied with Hungary’s direction, the trade has proven too heavy, and profit-taking has pushed yields higher, in some cases causing Hungary to underperform its CEE peers, which were also weighed down by global paying flows. Following the release of the budget proposal, EUR/HUF briefly tested new lows but ended the day essentially unchanged."

"Today also features a meeting of the National Bank of Hungary, which is likely to leave interest rates unchanged at 5.50%. Although the NBH has cited knowledge of the fiscal plan as a prerequisite for further rate cuts, we believe it is still too early for the central bank to lower rates further. Forward guidance today could be positive in the sense of pointing toward more rate cuts, but at the same time, the central bank should take into account higher global energy prices."

"Overall, we maintain our previous view that the trade is currently too crowded, and we would not be surprised by a more significant correction, given how strongly Hungarian bonds rallied ahead of the budget plan’s release. On the other hand, we remain bullish on the overall story, and we expect that, sooner or later, the market will begin to fade the higher yields."

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