Hungary's May inflation rate was reported at 1.8% year-on-year, remaining unchanged and coming in below both market expectations of 2.2% and the National Bank of Hungary's (NBH) March inflation report forecast of 3% [1]. ING’s Frantisek Taborsky attributes this low inflation to Hungary's unique disinflation story, supported by sharp FX appreciation and price shields, which have kept inflation subdued despite global pro-inflationary pressures [1].
The soft CPI data has solidified expectations for the NBH to begin an easing cycle in June, with an initial 25 basis point cut to 6.00% anticipated. ING economists forecast a total of 75 basis points of easing for the remainder of the year, though the current inflation figures may lead markets to price in even more easing [1]. Governor Zoltan Kurali has indicated that while easing is imminent, the central bank does not intend to rush, suggesting that rate cuts will be limited to 25 basis points at a time [1].
Despite global sentiment deterioration, the EUR/HUF exchange rate has remained stable at around 355. ING maintains a mid-year target of 350 for EUR/HUF, reflecting growing conviction in NBH rate cuts as long as the currency remains stable or strengthens further [1]. The upcoming NBH meeting is scheduled for two weeks from now, and while global conditions could shift, ING sees the risk as positive for Hungary, especially given recent Middle East tensions and a stronger US dollar [1].
CONCLUSION
Hungary's persistently low inflation has anchored expectations for a measured NBH easing cycle, with markets anticipating gradual rate cuts. The Hungarian Forint's stability against the Euro supports confidence in further monetary easing, and analysts see positive risk for Hungary amid global uncertainties. Overall, the market takeaway is cautiously optimistic, with attention focused on the upcoming NBH meeting.