HUF: NBH must increase hawkishness to protect FX – ING

The National Bank of Hungary is likely to leave rates unchanged today at 6.50% in line with market expectations, ING’s FX analyst Frantisek Taborsky notes.

Weakness in HUF is likely to fade

“The central bank is expected to confirm the hawkish message from the last meetings and perhaps increase the amount of hawkishness, given some upside inflation surprises and the current developments in the Middle East, which clearly threaten FX and price stability in Hungary. The new forecast will also be in the spotlight, where we are likely to see a worse outlook for the economy this year and next.”

“The market has priced in roughly two rate cuts this year over the past few weeks, leaving only one at the end of the year. At the same time, the priced terminal rate has risen from roughly 5.00% to 5.60%. Our economists do not expect any rate cut this year and the NBH should not return to rate cuts until early next year. Moreover, the current energy price developments, geopolitical uncertainty and pressure on the HUF should keep the central bank’s tone strongly hawkish.”

“EUR/HUF almost touched 404.5 yesterday, the highest since late May, and as we expected, was the most affected currency in the CEE region after the risk-off trigger this weekend. However, as we discussed here yesterday, we believe any weakness in HUF should fade and the market should sell EUR/HUF ahead of the NBH meeting today, which should protect the currency and head back below 402.”

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