EUR/HUF: Unlikely to slump below 395 despite NBH's hawkish surprise – ING

The National Bank of Hungary (NBH) issued a sharp hawkish surprise to markets, hiking its base rate by 185 bps. However, the forint has only limited room to appreciate, economists at ING report.

NBH joins the 100 basis-point club

“NBH did the impossible and surprised financial markets by raising the base rate by 185 bps to 7.75%. The NBH also made a pre-commitment to hike the 1-week deposit rate by 50 bps to 7.75% this Thursday. What is even more important is that from now on, the 1-week deposit rate and the base rate are at the same level. This makes the monetary policy toolkit, or at least the communication about that, simpler and easier to understand.

“In the short term, we expect the rate differential to widen further in the coming days, adding some more support to the forint. But we believe that under current conditions there is room for appreciation only towards the 395 level.”

“In the long run, it is still about waiting for a turnaround in negotiations with the EU regarding Rule of Law and EU funds disputes, which will unlock the hidden potential of the forint in the second half of the year (perhaps in September).”