Hungarian inflation has declined further from 1.8% to 1.7%, coming in below both market expectations and the National Bank of Hungary's (NBH) June Inflation Report forecast of 2.0% [1]. According to Frantisek Taborsky at ING, this lower-than-expected inflation reading solidifies the likelihood of rate cuts by the NBH in July and August [1].
Market pricing as of yesterday indicated expectations for around 150 basis points of easing and a terminal rate of 4.50%, which aligns with ING's forecast, assuming BUBOR remains above the policy rate at the end of the cycle [1]. ING also notes that, while this amount of easing is significant in a global context, there is still potential for the market to price in at least one additional rate cut, given the more favorable conditions compared to two years ago [1].
Although further rate cuts would typically be negative for the Hungarian forint (HUF), ING believes the rate differential currently has only a limited impact on the EUR/HUF exchange rate. Instead, market participants are more focused on domestic politics and the euro adoption narrative [1]. In the short term, the forint may experience some pressure as additional cuts are priced in, but ING expects the EUR/HUF to remain stable within the 350–356 range over the medium term. Additionally, the forint could continue to benefit from summer carry demand [1].
CONCLUSION
Hungarian inflation's drop to 1.7% has reinforced expectations for further NBH rate cuts, with markets pricing in significant easing ahead. Despite the dovish outlook, ING anticipates only limited FX impact, with the forint expected to remain stable in the medium term and potentially supported by carry demand.