Commerzbank‘s Tatha Ghose reports that Hungary’s central bank Magyar Nemzeti Bank (MNB) cut its base rate to 5.75%, in line with expectations, and maintained its summer easing narrative. Despite recent Forint correction, the bank still sees room for further cuts while preserving positive real rates, with a reassessment in September. Communication was mildly dovish, though HUF continues to outperform peers like the Polish Zloty.
Mini easing cycle continues
“Hungarys National Bank (MNB) cut its base rate by 25bp to 5.75% yesterday, as had been unanimously expected by analysts. The decision itself did not carry surprise. MNB had already restarted its easing cycle in June, and the subsequent guidance had signalled room for further cuts during the summer months if favourable inflation and financial-market developments persisted.”
“The more interesting message was that MNB did not use the recent correction in the forint as reason to back away from the mini easing cycle. The post-meeting statement noted that inflation developments had been more favourable than the June baseline, while the lower risk premium on domestic assets had persisted (we could argue the opposite – because HUF weakened sharply when the Iran war re-started – but, MNBs view appears more reasonable).”
“Looking ahead, MNB sees room to further decrease the base rate throughout the summer, while maintaining a positive real interest rate; the continuation of the cycle will then be reassessed using the September Inflation Report. This message added some dovish surprise/tilt to MNBs messaging.”
“Mihaly Vargas press conference broadly reinforced this message. Varga emphasised that the macro outlook remains broadly in line with the June Inflation Report, with inflation softer than expected, but energy prices somewhat higher and the Middle East conflict still a risk. He also repeated that a stable exchange rate is important for lowering and anchoring inflation expectations.”
“On balance, yesterdays communication was mildly dovish because Varga left an August cut on the table and postponed the bigger debate until September. The forint may have briefly weakened because of dovish MPC signals, but relative to peers such as the Polish zloty it holds on to its outperformance since the beginning of the year – the latest reversal is hardly noticeable.”