Hungarian Forint: Forint supported by possible MNB pause – Commerzbank

Commerzbank’s Tatha Ghose highlights a sharp Forint rally after a Bloomberg report suggested the National Bank of Hungary may pause rate cuts on 22 September and consider lowering its inflation target. While unconfirmed, this aligns with the bank’s less dovish August message. Ghose argues that a pause and lower target would support HUF by addressing inflation risks and easing concerns over continued easing.

Pause expectations bolster Forint

"The forint rallied sharply yes after a Bloomberg report cited unnamed National Bank (MNB) sources to suggest that the central bank is preparing to pause its rate-cutting cycle at the 22 September meeting, while also possibly lowering its inflation target from 3.0% to 2.5%."

"Still, the direction would be consistent with the less dovish message which MNB already sent at the August meeting: after cutting the base rate by 25bp to 5.50%, MNB did not pre-commit to further easing and instead said that the future rate path would be decided in September based on updated forecasts."

"July headline inflation was only 1.2%y/y, which gives policymakers a convenient window to lower the target without immediately having to tighten monetary policy. But the year-on-year number is not the whole story: on seasonally-adjusted month-on-month basis, inflation accelerated to faster than the 3.5% target – but this is something not every commentator may have observed."

"A pause would give MNB space to track all this, while also allowing investors to digest a lower inflation target and the government’s still-uncertain fiscal plans."

"The FX market clearly liked the news. The forint rallied sharply intraday after the report, gaining the most since the post-election move in April. This reaction is not surprising: MNB cutting rates during a period of external inflation risk had become the main source of vulnerability for HUF. An official confirmation that MNB will pause rate cuts in September and beyond will provide much needed boost to the currency."

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