HUF: War risk delays rate cuts – Commerzbank

Commerzbank analyst Michael Pfister notes that despite low Hungarian inflation and February’s initial 25 bp cut, the Iran war has shifted priorities, with markets and the bank expecting the central bank of Hungary, Magyar Nemzeti Bank (MNB) to hold rates today. He sees scope for a cut next month if Oil falls, but warns that election risks and a weaker Euro (EUR) could weigh on the Hungarian Forint near term.

MNB cautious as markets price hikes

"However priorities have shifted in recent weeks due to the war in Iran, causing European central banks to exercise heightened vigilance despite hopes for a swift end. All economists surveyed by Bloomberg therefore expect interest rates to remain unchanged today, and we too believe that the MNB is not in such a hurry to deliver the next rate cut in the current market environment."

"Market expectations suggest that, as in many other countries, the current focus is not so much on when the next interest rate cut will come, but rather on whether and by how much European central banks might hike rates again this year. The MNB is no exception; the market is now pricing in interest rate hikes of 50 basis points in the coming months - slightly more than for its Eastern European peers. As with other central banks, however, I doubt that these rate hikes will materialise to that extent."

"Other factors are likely to be more relevant for the HUF in the coming weeks, however, such as the reaction to a weaker euro (from which the HUF usually suffers disproportionately) and the approaching election in Hungary."

"There is certainly a scenario in which we could see a HUF rally after the election, should the prospect of EU funds being released be factored in. Until then, however, the election campaign appears to be waged using increasingly unsavoury tactics, which pose a risk to the HUF."

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