The Hungarian MPC paused monetary easing in August as underlying inflation indicators were not improving at all in the preceding months.

MNB to nudge its base rate lower from the current 6.75%

“The guidance remained that further rate cuts were in the pipeline, but not immediately – stubborn service sector inflation did not allow this. The central bank (MNB) wanted to be cautious and aim for a positive real interest rate at the end of the easing cycle. Against this background, market expectations remained for two more 25bp rate cuts by the end of the year.”

“Circumstances have slightly changed since, and one of these cuts is likely to be made today. In August, Hungarian inflation indicators improved sharply, with both headline and core inflation momentum noticeably decelerating. The increase in tax-adjusted core CPI slowed from a preceding 3-month average rate of circa 0.4% m/m to 0.2% m/m.”

“Given the many dovish signals by major global central banks recently, it is to be expected that MNB would now nudge its base rate lower from the current 6.75%. The forint is currently benefiting from a stronger euro, and is unlikely to be negatively affected by such a rate cut.”