The Hungarian Central Bank (MNB) is widely anticipated to keep its key interest rate unchanged at 5.50% during its September 22 meeting, following a 25 basis point cut in August, according to Antje Praefcke at Commerzbank [1]. The MNB had previously indicated the possibility of further easing over the summer but refrained from committing to additional measures in August, instead emphasizing that future decisions would depend on updated forecasts in September [1].
Recent media reports, citing unnamed MNB sources, suggest the central bank intends to pause its rate-cutting cycle and may lower its inflation target from 3.0% to 2.5% [1]. Headline inflation was reported at 1.2% year-on-year in July and 1.3% in August, providing the MNB with an opportunity to adjust its inflation target without immediate tightening of monetary policy [1]. However, month-on-month inflation remains on the rise, with drought and high energy prices contributing to increased inflation risks [1].
Commerzbank notes that a pause in the easing cycle and a shift to a less dovish stance are expected to offer short-term support for the Hungarian Forint (HUF) [1]. The market is likely to focus on whether the MNB maintains a cautious approach to further rate cuts for the remainder of the year, as well as any changes to the inflation target [1]. Additionally, both the market and the MNB are expected to await the government's budget plans, which are due in early October [1].
Overall, the MNB's cautious stance is seen as a signal of vigilance regarding external price risks in a global environment of rising inflation rates, which could help stabilize the forint in the near term [1].
CONCLUSION
The Hungarian Central Bank's expected pause in rate cuts and potential lowering of its inflation target are viewed as supportive for the forint in the short term. Market participants are likely to monitor the MNB's stance on future rate decisions and await further guidance from upcoming government budget plans.