Hungarian Forint: HUF strength supports easing path – Societe Generale

Societe Generale analysts expect the Hungarian central bank Magyar Nemzeti Bank (MNB) to cut rates by 25 bps to 6.0%, citing improved sentiment after Peter Magyar’s election victory and an EU-friendly policy stance. Stronger funding conditions and sub-target inflation have driven EUR/HUF to around 350, its lowest since August 2021, with scope for further MNB easing by year-end.

MNB easing backed by stronger forint

"In EM, our house view is for a 25bp rate cut in Hungary today to 6.0%, in line with consensus. The carry remains attractive compared to regional peers incl Czech Republic and Poland (both policy rates at 3.75%), but improved investor sentiment since the election victory of Peter Magyar in April has created room for the MNB to ease policy."

"EUR/HUF retraced to around 350/EUR, the lowest since August 2021. Headline inflation slowed to 1.8% in May, below the 2–4% target band, reinforcing the easing case. Tactical profit-taking in the forint is likely given stretched positioning. Our base case is for the MNB rate to fall to 5.0% by year-end."

"The euro-friendly policy stance, unlocking EU funds and commitments to fiscal discipline have all bolstered confidence in the forint. Funding conditions have eased materially, with the 10y yields falling to ~5.15% from 7.47% in March, below Poland (5.41%). Swaps have come down to 4.81%."

"EUR/HUF recently reached the lower limit of a descending channel in place since 2022 at 348, which is also a projection and may act as an intermittent support."

"A brief bounce is taking shape however it will be important to observe whether the pair can form a base and gradually reclaim the 50-DMA, currently around 358. An inability to maintain above 348 may lead to extension in decline towards the 2021 lows of 344/342."

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