The Hungarian Forint experienced a sharp rally following a Bloomberg report that cited unnamed National Bank of Hungary (MNB) sources suggesting the central bank may pause its rate-cutting cycle at the upcoming 22 September meeting and is considering lowering its inflation target from 3.0% to 2.5% [1]. This potential policy shift aligns with the less dovish tone communicated by the MNB at its August meeting, where the base rate was cut by 25 basis points to 5.50%, but the bank refrained from pre-committing to further easing, stating that the future rate path would be determined in September based on updated forecasts [1].
Commerzbank’s Tatha Ghose notes that July's headline inflation was only 1.2% year-on-year, providing policymakers with an opportunity to lower the inflation target without the immediate need to tighten monetary policy. However, Ghose points out that on a seasonally-adjusted month-on-month basis, inflation accelerated above the 3.5% target, a detail that may not be widely recognized among commentators [1].
The FX market responded positively to the news, with the forint posting its largest intraday gain since the post-election move in April. The rally reflects investor relief, as ongoing rate cuts during a period of external inflation risk had been a key vulnerability for the forint. An official confirmation of a rate cut pause by the MNB in September and beyond is expected to provide further support to the currency [1].
Ghose concludes that a pause would allow the MNB to monitor inflation developments and give investors time to adjust to a potentially lower inflation target, while also considering the government's still-uncertain fiscal plans [1].
CONCLUSION
The Hungarian Forint's sharp rally was driven by expectations that the National Bank of Hungary will pause its rate-cutting cycle and may lower its inflation target. Market participants viewed these potential moves as supportive for the currency, reducing concerns about inflation risks and ongoing monetary easing. Confirmation of these policy shifts could further strengthen the forint.