Yesterday’s meeting of the National Bank of Hungary brought no surprises as rates remained unchanged at 6.25%. From the market perspective, the meeting brought everything the market wanted to hear, in our view. The focus on FX stability remains and the central bank will not rush into any quick steps. At the same time, we did not see any signs of conflict with the incoming government. We also heard some talk about euro adoption, and although it is not exactly on the table, it remains an important catalyst for the market after the elections. In addition, the central bank’s governor mentioned the prospect of a lower risk premium, in other words, possible rate cuts in future.
On the other hand, the market headlines probably indicate a more dovish tone from the NBH than the governor intended, and we do not want to overthink the governor’s words here. Our baseline remains no rate change this year and the first rate cut next year. However, we see the risk of earlier cuts, especially if energy prices normalise in the near future.
The market reaction to the NBH press conference was a bit hazy, with global headlines dominating at the same time. This gave the wider CEE region some relief after the morning sell‑off. However, the market did not have too high expectations from yesterday’s meeting due to geopolitical uncertainty and waiting for the official inauguration of the new government in Hungary. EUR/HUF closed at 364, and in particular, the front of the IRS curve closed almost unchanged compared to the CEE region, which was still elevated at the end of the day. The market remains convinced that the NBH is in no hurry to cut rates over the next nine months, which is in line with our forecast.
This, together with the steps of the new government, should support further FX gains with 350 EUR/HUF in the middle of the year in our forecast. Incoming PM Peter Magyar is scheduled to travel to Brussels today to discuss the potential unlocking of EU funds, which could provide further support to FX and rates.
Frantisek Taborsky
