ING’s Frantisek Taborsky says Hungary’s May inflation at 1.8% year-on-year confirms an idiosyncratic disinflation story and makes a June NBH easing cycle “a done deal”, with an initial 25 bp cut to 6.00% and 75 bp total this year. EUR/HUF remains around 355, with a mid-year target of 350 as conviction on rate cuts grows.

Low inflation anchors forint outlook

"Inflation in Hungary in May remained unchanged at 1.8% YoY, below market expectations (2.2%) and below the 3% forecast in the National Bank of Hungary's March inflation report. This confirms that Hungary remains in its idiosyncratic story since the April elections and the combination of sharp FX appreciation and price shields is keeping inflation low despite the pro-inflationary global story."

"The start of an easing cycle in June seems like a done deal, and we expect 25bp to 6.00%. For the rest of the year, our economists see 75bp of easing overall, but today's soft CPI data can probably see the market pricing more than that."

"Yesterday's headlines from Governor Zoltan Kurali suggest that easing is coming, but the central bank does not want to rush. This means we cannot expect any bigger steps than 25bp."

"Meanwhile, EUR/HUF is showing admirable stability at 355 despite the deterioration of global sentiment. As long as EUR/HUF remains stable or grinds down, we believe that conviction regarding NBH rate cuts is growing. At the same time, we maintain 350 EUR/HUF as the target in our mid-year forecast."

"The June NBH meeting is only two weeks away and the global situation could still change in the meantime. However, the risk is rather on the positive side for Hungary given the escalation of the Middle East conflict over the weekend and the stronger US dollar at the moment."

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