Key Moments
- Commerzbank’s Tatha Ghose expects the MNB to keep its base rate at 5.50% and questions the case for any near-term easing.
- Seasonally adjusted inflation dynamics and a sizable fiscal deficit are highlighted as reasons for potentially tighter policy, not cuts.
- Ongoing discussion of further rate reductions is seen as an obstacle to the Hungarian forint’s (HUF) next phase of appreciation.
Policy Outlook and Market Expectations
Commerzbank’s Tatha Ghose anticipates that Hungary’s central bank will leave its main policy rate unchanged at 5.50%, arguing that recent economic and inflation developments do not support additional monetary easing. In his view, Hungary’s real economy is in recovery and seasonally adjusted inflation momentum has strengthened, which runs counter to the justification for cutting rates.
He notes that Hungary has a sizeable fiscal deficit, a lower inflation target going forward, and an ambition to join ERM II. Taken together, these factors are cited as arguments for maintaining – or even tightening – the current monetary stance rather than relaxing it. Ghose also cautions that persistent discussion about potential rate cuts is limiting the Hungarian forint’s ability to extend its gains.
Market Focus on Central Bank Communication
“Hungary’s National Bank (MNB) is unanimously expected by analysts to leave its base rate unchanged at 5.50% later today; we hold the same view. The crucial point of interest will be whether or not MNB will still signal rate cuts as a realistic option for November or December.”
Ghose underscores that the key issue for markets is not the immediate rate decision, which is broadly anticipated, but rather the future guidance that the MNB will offer on potential easing in the coming months.
Inflation Dynamics and Monetary Policy Implications
“Our preferred seasonally-adjusted month-on-month measures, including the rate of change of MNB’s underlying core indicators, have re-accelerated from disinflationary territory to beyond target. Monetary policy should react to this prospective momentum, not take comfort from favourable base effect.”
Based on these inflation indicators, Ghose suggests that the balance of risks points away from further cuts. The renewed upward momentum in seasonally adjusted measures is described as having moved from disinflationary conditions to levels above target, implying that the environment may call for a more vigilant policy stance.
Fiscal Backdrop and Inflation Risks
“Fiscal policy reinforces the same conclusion. IMF warned about potential 7.5% of GDP fiscal deficit this year, and no convergence back with the Maastricht ceiling in the medium-term under unchanged policies. Such a deficit outlook is already a key pro-inflationary factor.”
Ghose highlights the fiscal position as an additional source of inflationary pressure. The warning regarding a possible fiscal deficit of 7.5% of GDP and the lack of expected convergence toward the Maastricht reference value over the medium term is framed as amplifying upward pressure on prices, further questioning the rationale for additional easing.
Implications for the Forint
“Yet further rate cuts appear to be still under consideration. Until this changes, HUF will not be ready for its next major leg up, in our view.”
According to Ghose, as long as additional rate reductions remain on the table, the HUF is unlikely to embark on a more substantial appreciation phase. The perceived disconnect between inflation risks, fiscal conditions, and the ongoing discussion of potential cuts is seen as a drag on the currency’s upside potential.
Summary of Key Policy and Market Factors
| Factor | Detail |
|---|---|
| Base rate expectation | MNB base rate expected to remain at 5.50% |
| Inflation trend | Seasonally adjusted month-on-month measures seen re-accelerating beyond target |
| Fiscal outlook | IMF warning of potential 7.5% of GDP fiscal deficit and no medium-term convergence to Maastricht ceiling under unchanged policies |
| Policy concern | Further rate cuts reportedly still under consideration despite rising inflation momentum |
| Currency implication | Ongoing rate-cut discussion viewed as limiting HUF’s next major appreciation phase |
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