Hungary's central bank is expected to cut its key rate to 5.75% on Tuesday, with inflation at 1.7% – below the 2% target floor. The forint's recent weakness may slow the pace of easing.
Alpha Score of 68 reflects moderate overall profile with strong momentum, strong value, weak quality, moderate sentiment.
(Bloomberg) – Hungary's central bank is set to lower borrowing costs for a second straight month, with inflation staying below its target range. The National Bank of Hungary will cut its benchmark rate by a quarter point to 5.75% on Tuesday, according to all 23 economists surveyed by Bloomberg. The decision is due at 2 p.m. in Budapest, followed by a statement and Governor Mihaly Varga's press briefing an hour later.
The move would follow June's quarter-point reduction, when the central bank restarted easing after sharply lowering its inflation forecasts. Those forecasts reflected the forint's appreciation after Prime Minister Peter Magyar's election win over Viktor Orban in April. Varga said policymakers had room for two additional quarter-point cuts over the summer before reassessing conditions in September, when a new set of macroeconomic projections will be published.
Incoming data reinforced that guidance. Annual inflation slowed to 1.7% in June from 1.8% a month earlier, below the central bank's 2%-4% tolerance band for a second consecutive month. Softer energy prices and low imported inflation continued to offset the gradual removal of government price-curbing measures. The new government's pledge to pursue euro adoption has also supported the currency and helped compress government bond yields.
Since last month's rate decision, the forint has weakened nearly 2% against the euro after escalation in the Iran war. That's made the currency among the worst-performing globally and highlighted landlocked Hungary's heightened exposure to energy price swings. The depreciation is likely to bolster the cautious attitude of the Monetary Council, which last month eschewed a proposal for a half-point key rate cut in favor of proceeding in quarter-point steps.
Even after a quarter-point cut, Hungary's rate would remain among the highest in the European Union. That gives policymakers room to keep normalizing policy while maintaining a premium over peers such as Poland and the Czech Republic.
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