Commerzbank’s Tatha Ghose expects the central bank of Hungary Magyar Nemzeti Bank (MNB) to cut its base rate by 25bp to 5.75%, continuing June’s easing cycle. He stresses that lower Consumer Price Index (CPI) forecasts and Governor Varga’s view that inflation will stay below the 3% target justify cuts, while warning that global risk aversion and geopolitical tensions have weakened the Forint, though today’s widely anticipated move should have limited FX impact.

Rate cuts driven by inflation outlook

"Hungary's National Bank (MNB) is unanimously expected by analysts to cut its base rate by 25bp to 5.75% later today; we hold the same view. The decision should not come as a surprise. MNB resumed policy easing in June with a 25bp cut, and the subsequent minutes explicitly signalled scope for further easing during the summer months if favourable inflation and financial market developments continued."

"Those conditions have broadly held, except the forint appreciation – which has reversed as a result of global risk appetite deteriorating – but it is difficult to envisage the central bank making exceptions to its policy stance based on every market move. The June Inflation Report revised the 2026 average CPI forecast sharply lower to 1.8%, and governor Mihaly Varga argued that inflation was not expected to exceed the 3% target either through the remainder of this year or in 2027."

"As we wrote after the June meeting, such a large downward revision validates the direction of easing. This is not MNB cutting to support growth; it is MNB cutting because the inflation outlook has overrun its earlier projections."

"In June, there was a dissent vote (by Zoltan Kovacs) for 50bp cut, but this is probably not a majority-held view in the MPC. The MPC is likely to be cautious because of uncertainty surrounding fiscal policy, the failing Iran ceasefire and higher energy prices."

"The rate cut has been widely anticipated and signalled, and should not have noticeable impact on the forint. As we have recently written, the forint has weakened sharply from global risk aversion as the US-Iran war resumed, which is an independent development and may or may not reverse in the near-term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)