Hungarian Forint Holds Firm Ahead of Expected NBH Cuts

Key Moments

Low Inflation Supports Easing Outlook

ING analyst Frantisek Taborsky highlights that Hungary’s May consumer price index rose 1.8% year-on-year, unchanged from the previous reading. This outcome came in below market expectations of 2.2% and under the 3% projection included in the National Bank of Hungary’s March inflation report.

According to Taborsky, this inflation performance reinforces the view that Hungary is experiencing an “idiosyncratic” disinflation dynamic following the April elections. He notes that the combination of significant foreign exchange appreciation and various price shields has held inflation down despite a broader global backdrop that is seen as pro-inflationary.

NBH Policy Path: Easing Seen as Imminent

Taborsky indicates that, in ING’s view, the launch of an NBH easing cycle at the June policy meeting “seems like a done deal.” The expectation is for an initial 25 basis point reduction, which would bring the main policy rate to 6.00%.

For the remainder of the year, ING’s economists project a cumulative 75 basis points of easing. However, Taborsky suggests that the latest softer-than-expected inflation numbers may lead markets to discount the prospect of even more substantial easing than this baseline view.

He also refers to recent comments from NBH Governor Zoltan Kurali, stating that “yesterday’s headlines” imply the central bank is preparing to ease policy but is not inclined to move aggressively. On that basis, Taborsky argues that investors should not anticipate rate cuts larger than 25 basis points per step.

Forint Resilience and EUR/HUF Targets

In the foreign exchange market, Taborsky points out that EUR/HUF has shown notable resilience, trading around 355 despite a deterioration in broader risk sentiment. He argues that as long as the cross remains stable at current levels or gradually moves lower, confidence among market participants in the NBH’s rate-cutting trajectory is likely to strengthen.

ING continues to see scope for modest further forint appreciation, maintaining a mid-year target of 350 for EUR/HUF.

Upcoming NBH Meeting and External Risks

Looking ahead, Taborsky notes that the NBH’s June meeting is scheduled to take place in two weeks. He cautions that global conditions may shift before then, but he sees the balance of risk as tilted favorably for Hungary.

He links this view to recent developments, including “the escalation of the Middle East conflict over the weekend” and the currently stronger US dollar. These factors are framed as external conditions that could influence Hungary’s risk profile and market dynamics in the near term.