Hungarian Forint: MNB easing and HUF carry prospects – BNY
BNY’s Geoff Yu describes Hungary as a constructive story within EMEA, with post-election re-rating and scope for continued MNB easing.
Hungarian Forint (HUF) is deemed a constructive story within EMEA, according to BNY's Geoff Yu. Post-election re-rating and the potential for continued easing by the Hungarian National Bank (MNB) are seen as opportunities. Corporate flows are strong, and spreads are still compensatory. If inflation remains contained, the HUF could be a stronger carry currency.
However, power and energy constraints introduce some caution regarding duration and fiscal risks. Hungary is the first test to determine if easing can continue despite these constraints. The MNB meets this week following a strong post-election re-rating, which included a 200bp drop in the 10-year government yield. While the full-year deficit is projected to reach 7.5% of GDP, record monthly surpluses in June and July alter the near-term outlook.
Corporate flows have surged to their strongest level in six months, and public-sector institutional reforms are underway, with markets anticipating positive effects on the private sector. Still, spreads provide enough compensation to maintain demand. The MNB's meeting this week will be crucial in assessing whether easing can persist given supply and fiscal constraints.
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