Commerzbank’s Tatha Ghose highlights that Hungarian inflation has fallen below the lower bound of the MNB’s tolerance range, with underlying measures remaining within target. He argues that this strengthens the case for a June rate cut from the current 6.25% policy rate, and expects EUR/HUF to trade broadly stable around 355–360 over the coming quarter.

Benign inflation enables MNB easing

"Hungary's CPI inflation slowed significantly to 1.8%y/y in May from 2.1%y/y in April, coming in well below expectations. Consensus forecasts had predicted inflation to be 2.2%y/y. Notably, the 1.8%y/y figure sits just below the lower bound of the tolerance range around the National Bank of Hungary's (MNB)."

"Some of the downside surprise was linked to supply factors, including administrative price caps on fuel and previous government measures. Even if the degree of softness of CPI may have other reasons, we may generally conclude that recent increases in global energy and commodity prices from the Iran war are not having a huge pro-inflationary impact."

"MNB governor Mihaly Varga has confirmed that the MPC discussed a rate cut on 26 May, but ultimately decided to maintain the benchmark rate in a non-unanimous decision. Varga acknowledged that the central bank now perceives a more benign inflation path and recognises that the change in the country's risk premium has made the room for lower rates."

"The weaker inflation data strengthens the case for monetary easing and effectively clears the path for a potential rate cut at the 23 June policy meeting. The current key interest rate stands at 6.25%, and with inflation at around 2%y/y, this implies a high real interest rate, which is pushing the forint stronger."

"We do not expect a negative impact of a rate cut on the exchange rate; rather we see EUR-HUF trading around 355-360 over the coming quarter."

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