Hungarian Forint: Forint supported by possible MNB pause – Commerzbank
Commerzbank’s Tatha Ghose highlights a sharp Forint rally after a Bloomberg report suggested the National Bank of Hungary may pause rate cuts on 22 September and consider lowering its inflation target. While unconfirmed, this aligns with the bank’s less dovish August message.
Hungarian Forint (HUF) experienced a significant rally following a Bloomberg report indicating the National Bank of Hungary (MNB) might pause rate cuts and potentially lower its inflation target. Commerzbank analyst Tatha Ghose noted that this development could bolster the HUF by alleviating inflation concerns and supporting the central bank's less dovish stance after their August meeting.
The MNB had cut the base rate from 5.50% to 5.25% but did not commit to further easing, stating that future rate adjustments would be determined based on updated forecasts. While the annual headline inflation rate stood at 1.2% y/y, monthly inflation had surged past the 3.5% target, a detail that may have been overlooked by some analysts.
A pause in rate cuts would allow the MNB to closely monitor the situation while also providing investors with ample time to adjust to the lower inflation target and the government's fiscal plans. The FX market reacted positively to the news, with the HUF gaining the most since the post-election period in April. This move is not surprising, as a pause in rate cuts could mitigate external inflation risks, which were previously a major vulnerability for the HUF.
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