Hungarian Inflation Eases, Keeping NBH Rate Cut Path Open

Key Moments

Inflation Undershoot Reinforces NBH Easing Path

Frantisek Taborsky at ING notes that the ongoing decline in Hungarian inflation, which moved down from 1.8% to 1.7%, has come in below both market projections and the National Bank of Hungary’s (NBH) June Inflation Report estimate of 2.0%. He argues that this disinflation trend firmly supports the case for policy rate cuts in July and August.

According to Taborsky, the latest inflation data provide further confirmation of a dovish trajectory, creating conditions that are more favorable than those seen two years earlier. In his view, this backdrop enables the market to contemplate additional monetary easing beyond what has already been priced.

Market Pricing and Rate Outlook

Taborsky highlights that, based on pricing observed the previous day, investors were discounting roughly 150bp of further rate reductions and a terminal policy rate of 4.50%. He indicates that this outlook is consistent with ING’s own projections, which assume that BUBOR will remain above the policy rate at the end of the easing cycle.

He also points out that, while this scale of expected easing may appear large in an international context, there is still potential for the market to incorporate at least one more rate cut relative to 2024. He attributes this to improved macro-financial conditions and the supportive, dovish inflation profile that could guide expectations toward additional easing.

FX Market: Limited Sensitivity to Rate Differential

Taborsky acknowledges that, in principle, the prospect of more rate cuts “should mechanically be negative for FX.” Nonetheless, he argues that the influence of interest rate differentials on EUR/HUF is currently limited. Instead, he believes that market participants are paying greater attention to domestic political developments and the broader narrative around potential euro adoption.

He adds that the forint could face some short-term softness as investors price in additional easing. Over a longer horizon, however, he anticipates that EUR/HUF will settle within the prevailing 350-356 corridor. At the same time, he expects the forint to continue to draw support from seasonal summer carry demand.

NBH Strategy and Forint Dynamics

Summarizing the outlook, Taborsky sees a policy environment in which further NBH easing can proceed without triggering significant currency instability. The combination of subdued inflation, a still-supportive rate differential, and investor appetite for carry is seen as underpinning a relatively steady forint, even as the central bank advances along a dovish policy path.

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“Hungarian inflation dropped further from 1.8% to 1.7%, below market expectations. This is also below the National Bank of Hungary’s forecast in its June Inflation Report (2.0%). This will therefore cement the rate cuts in July and August.”

“Based on yesterday’s pricing, the market was pricing around 150bp of easing and a 4.50% terminal rate, in line with our forecast, assuming BUBOR remains above the policy rate at the end of the cycle.”

“While this appears sizeable in a global comparison, relative to 2024 there is still room for the market to price in at least one additional rate cut in our view. Conditions are much more favourable than they were two years ago, so we expect the dovish inflation path to push pricing further towards additional easing.”

“This should mechanically be negative for FX. However, we think the rate differential has only a limited impact on EUR/HUF at the moment, with the market more focused on domestic politics and the euro adoption story.”

“In the short term, the forint may come under some pressure as more cuts are priced in, but over the medium term we expect EUR/HUF to stabilise within the current 350-356 range. At the same time, the forint may continue to benefit from summer carry demand.”