ING’s Frantisek Taborsky highlights that Hungarian inflation rebounded to 1.3% in August but stayed below expectations and the NBH’s forecast, with price growth seen remaining under target this year. Markets are focused on a potential pause in rate cuts and a lower inflation target ahead of Euro adoption, while EUR/HUF could move back above 364 if rising energy prices curb recent forint strength.

Benign inflation but policy watch

“Today’s data confirmed the expected rebound in Hungarian inflation, from 1.2% in July, the lowest reading in nearly 10 years, to 1.3% in August, though it again came in below market expectations. Even so, we expect inflation to remain below the central bank’s target for the rest of the year. The NBH had forecast 1.8% for August, implying a forecast miss of 0.5pp, compared with 0.7pp in July.”

“The inflation outlook remains benign, but the NBH story has become more compelling since Bloomberg reported last week that the central bank was considering pausing rate cuts in September to pave the way for a lower inflation target ahead of euro adoption.”

“Subsequent NBH comments suggest that any policy shift will have to wait until the September meeting and its new forecast. Since last week, the curve has flattened sharply and the Hungarian forint has strengthened, moves that today’s data are unlikely to reverse.”

“We expect euro-area spreads to tighten further, although higher global energy prices may limit additional forint gains. EUR/HUF has fallen below 364, but if gas and oil prices continue to rise, we may return above this level again given how the forint has recently returned to its previous high-beta behaviour.”