Hungarian Forint: MNB tone shift watched – Commerzbank

Commerzbank’s Tatha Ghose expects Hungary's central bank, Magyar Nemzeti Bank (MNB), to cut its base rate by 25bp to 5.50%, but stresses that guidance will matter more for the Forint. While headline inflation has surprised on the downside, core and services pressures and energy risks persist. Ghose anticipates a less dovish tone, with conditional guidance on future cuts to support Hungarian Forint (HUF).

Rate cut but guidance critical

"Hungary's National Bank (MNB) is unanimously expected by analysts to cut its base rate by 25bp to 5.50% this afternoon; we hold the same view. The decision itself should not carry new information about the outlook."

"Month-on-month core inflation (adjusted for tax changes and seasonality) accelerated noticeably in July to above-target. In other words, this is no longer an unambiguous disinflation story."

"As we wrote in yesterday's comment on the CE3 currencies, MNB is in a rate-cutting cycle while regional inflation risks remain alive, and this has already hit the forint."

"The beta effect can help the currency at the margin if the euro were to rally further and risk sentiment to improve, but a fuller recovery would require MNB to switch to more realistic policy guidance in the event of an adverse price shock scenario."

"If Mihaly Varga simply repeats that further cuts remain available in September, the market will hear an unconditional easing message. The forint could stay under pressure if the signals from MNB remain totally dovish as they have been until now."

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