HUF: How hawkish can the NBH be? - ING

Today's meeting of the National Bank of Hungary should be a non-event in terms of a rate decision. Central bankers have made it clear that the cutting cycle is on hold for some time due to high financial instability, meaning too high a EUR/HUF. Numbers from the economy continue to surprise on the downside, with third-quarter GDP confirming a return to technical recession and headline inflation surprisingly holding close to the central bank's target. In fact, Hungarian headline inflation is the closest to the target among Central and Estern Europe (CEE) peers at the moment. However, the central bank's focus is on EUR/HUF which has repeatedly broken above 410, ING's Frantisek Taborsky notes.

EUR/HUF has repeatedly broken above 410

"Although the market was still pricing in rate hikes in late October and early November, these expectations have calmed since the US election and the market has rebuilt some rate cuts into the longer horizon of the FRA curve. Still, the NBH does not appear to have won. While market positioning is less short on the HUF than before the US election, the market still sees EUR/HUF heading more to the upside."

"So the NBH will have to show enough hawkish rhetoric today to be able to return EUR/HUF to more acceptable levels. At the same time, the NBH will want to avoid any hints of an additional rate hike or other stronger measures. EUR/HUF briefly returned to 410 yesterday but surprised with a reversal below 407 at the end of trading."

"Visibly the market is looking for a way to go. However, we believe 410 will remain the point of gravity in the current global environment, which the NBH does not fully control - namely the negative for the entire CEE region led by EUR/USD pushing lower."