Commerzbank analyst Michael Pfister highlights that despite Hungary's low inflation and an initial 25 basis point rate cut in February, the ongoing war in Iran has prompted the Magyar Nemzeti Bank (MNB) to prioritize caution, with both markets and the bank expected to keep interest rates unchanged today [1]. All economists surveyed by Bloomberg anticipate no change in rates, reflecting heightened vigilance among European central banks in response to geopolitical risks [1].
Market expectations have shifted, with participants now pricing in potential interest rate hikes of 50 basis points for the MNB in the coming months, which is slightly higher than for other Eastern European central banks. However, Pfister doubts these hikes will materialize to the extent currently anticipated [1].
Additional factors influencing the Hungarian Forint (HUF) include the impact of a weaker euro, which tends to affect the HUF disproportionately, and the upcoming Hungarian election. The election campaign is described as increasingly unsavoury, posing further risks to the HUF in the near term [1]. There is a scenario where the HUF could rally post-election if the prospect of EU funds being released is factored in, but until then, election-related uncertainty remains a key concern [1].
Pfister also notes that there may be scope for a rate cut next month if oil prices fall, but warns that both election risks and euro weakness could weigh on the HUF before then [1].
CONCLUSION
The Hungarian central bank is expected to hold rates due to war-related risks and election uncertainty, despite earlier signs of easing. Market sentiment is cautious, with potential for future rate cuts if conditions improve, but near-term risks from the euro and domestic politics are likely to weigh on the HUF.