The National Bank of Hungary (MNB) reduced its policy rate by 25 basis points to 5.75%, in line with expectations, and reaffirmed its dovish forward guidance, indicating a commitment to further monetary easing in August and a reassessment in September that could extend the rate-cutting cycle [1]. ING strategist Frantisek Taborsky noted that the MNB's confirmation of its earlier guidance, despite ongoing volatility and pressure on Hungarian assets due to global risk-off sentiment, has reassured markets that the domestic policy trajectory remains unchanged [1].
Following the press conference, investor reaction suggested acceptance of the renewed dovish stance, with rate cuts being repriced into market expectations [1]. ING anticipates this trend will continue, supported by a stable fundamental backdrop after the April elections and repeated downside inflation surprises [1]. Markets have currently priced out around 40 basis points of further easing, with the implied terminal rate now near 4.75-5.00%. ING expects market pricing to shift toward a more dovish outlook, closer to their medium-term forecast of 4.00%, while yield curve steepening persists [1].
On the foreign exchange front, the implications are mixed. Additional NBH rate cuts are expected to weaken the Hungarian forint's carry appeal, and a stronger US dollar combined with risk-off conditions remain unfavorable for emerging market currencies [1]. However, the EUR/HUF exchange rate has nearly returned to post-election levels, which should limit further upside. ING projects that if the global backdrop stabilizes, EUR/HUF could move back below 360 [1].
CONCLUSION
The National Bank of Hungary's rate cut and dovish guidance have been accepted by markets, with further easing now priced in. While the outlook for the forint remains mixed due to external factors, the central bank's stance is expected to support continued monetary loosening if conditions allow.