Hungarian Forint: NBH stance supports carry appeal – ING

ING’s Frantisek Taborsky expects the National Bank of Hungary to pause its mini easing cycle at 5.50% and possibly outline a two-step cut in its inflation target from 3.0% to 2.0%. He argues hawkish NBH signals and a lower inflation target should support the Forint and long-end bonds, even as crowded positioning and global energy volatility limit prospects for a sustained FX rally.

NBH pause seen backing Forint

"The National Bank of Hungary is expected to pause its current “mini” easing cycle, leaving the policy rate at 5.50%. It will also publish a new forecast and may review its inflation target, potentially outlining a two-step reduction from 3.0% to 2.0%."

"Rate expectations have consequently repriced sharply higher over the past two months, reinforced by reports that the NBH may pause rate cuts to strengthen the case for lowering its inflation target."

"At the same time, we would not be surprised if the market started to price a small chance of rate hikes in the event that energy prices start rising again, as elsewhere in CEE, despite our forecast for cuts later this year."

"The forint should also benefit from a more hawkish NBH: both a pause and a lower inflation target would signal tighter policy for longer and enhance the carry appeal."

"Still, the domestic story is having limited market impact, and a sustained rally in FX and fixed income is unlikely without some progress in the geopolitical situation."

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