ING analyst Frantisek Taborsky anticipates that the National Bank of Hungary (NBH) will pause its current 'mini' easing cycle, maintaining the policy rate at 5.50% [1]. The NBH is also expected to release a new forecast and may consider a two-step reduction in its inflation target from 3.0% to 2.0% [1]. According to Taborsky, recent hawkish signals from the NBH and the potential for a lower inflation target have led to a sharp repricing of rate expectations over the past two months [1]. These developments are seen as supportive for the Hungarian Forint and long-end bonds, as a pause and a lower inflation target would indicate tighter monetary policy for an extended period, thereby enhancing the currency's carry appeal [1].
Despite these supportive factors, Taborsky notes that the domestic story is currently having a limited impact on the market, and a sustained rally in the Forint and fixed income assets is unlikely without progress in the broader geopolitical situation [1]. He also mentions that while the market may begin to price in a small chance of rate hikes if energy prices rise, ING's forecast still anticipates rate cuts later in the year [1].
Overall, the NBH's hawkish stance and potential policy adjustments are viewed as positive for the Forint and Hungarian bonds, but external factors such as energy price volatility and geopolitical developments remain key constraints on a more pronounced market reaction [1].
CONCLUSION
The National Bank of Hungary's expected pause and possible lowering of its inflation target are seen as supportive for the Forint and long-term bonds. However, ING notes that broader market impact remains limited due to external uncertainties, and a sustained rally is unlikely without improvement in the geopolitical environment.