HUF: Dovish inflation shift points to rate cut – Commerzbank

Commerzbank’s Tatha Ghose expects Hungary’s MNB to deliver a 25bp rate cut at today’s meeting, though guidance has been mixed after Governor Varga’s earlier hawkish pivot. Softer January inflation and disinflationary HICP trends across the EU provide data-driven justification for easing. Ghose sees a cut as consistent with improved inflation dynamics and not structurally negative for the Forint.

Improved inflation backdrop supports easing

"Hungary’s National Bank (MNB) holds its monetary policy meeting later today: we expect the central bank to deliver its first rate cut of the cycle. The analyst consensus is split between ‘unchanged’ and ‘25bp rate cut’ outcomes – we lean towards the latter."

"Because Varga’s has already flip-flopped, however, he may feel obliged to stick with the hawkish guidance – this is why a rate cut today is not a done deal."

"Yet, we highlighted in our commentary on 13 February “Forint gets jolted” that inflation turned notably dovish in January (hence the “jolt” to the exchange rate following the data): headline inflation came in weaker-than-expected at 2.1%y/y, and more importantly, seasonally-adjusted month-on-month indicators for core inflation showed clear signs of converging towards target."

"Consequently, we anticipate a 25bp cut to the base rate today. This move has been increasingly priced in by markets and is a logical step given the fundamental improvement in the inflation outlook."

"While the forint may see some initial volatility in reaction to the dovish step, we do not anticipate any lasting negative impact because a rate cut in response to lower inflation does not necessarily imply a narrower real interest rate. Rather, it represents growing confidence that inflation is under control, which should ultimately support the currency."

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