CEE FX: Hungary budget and Turkey cuts – ING

ING’s Frantisek Taborsky highlights Hungary’s draft budget as key for regional bonds, with much optimism already priced on a deficit below 5% of GDP. He expects the National Bank of Hungary to keep rates at 5.50%, the Central Bank of Turkey to resume cuts to 36.00%, and EUR/RON to stabilise around 5.340, while another Czech rate hike is seen in November.

Hungary, Turkey and Romania drive regional moves

"Today’s focus is Hungary’s draft budget for next year. Hungarian bonds have rallied strongly in recent weeks on growing expectations that the plan will target a deficit below 5% of GDP. However, much of the good news now appears priced in, creating downside risk if the government falls short of expectations. Even so, the broader outlook for bonds remains positive, particularly compared with this year’s 7.0-7.5% deficit, and we expect investors to buy any dip following a sell-off."

"The region’s first economic releases arrive on Tuesday, with Polish wage, PPI and industrial production data. The main focus, however, will be the National Bank of Hungary meeting. We expect rates to remain unchanged at 5.50%, leaving attention on forward guidance. Although the central bank has identified the fiscal plan as a key factor for future easing, we believe cuts remain premature and, global conditions permitting, are unlikely before the end of this year or next year."

"On Thursday, we expect the Central Bank of Turkey to resume its easing cycle for the first time since the US-Iran conflict began, cutting rates by 100bp to 36.00%. September’s inflation data provided a positive signal, while developments in investment funds point to downside risks for the economy in the final quarter. Although crowded long TRY positions offer less and less carry, they remain popular in emerging markets, and we expect this demand to persist in the coming months despite renewed rate cuts."

"Beyond the scheduled events, we are monitoring political developments in Romania, where the new government appears highly likely to win a confidence vote. This should help stabilise EUR/RON after its decline late last week, and we expect the pair to settle around 5.340. In the Czech Republic, the Czech National Bank may offer its first signals ahead of the November meeting, when we expect another rate hike."

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