The National Bank of Hungary (MNB) moved the base rate by 100 bps to 11.75%. The newly announced measures to reduce excess liquidity will help to improve monetary transmission. Thus the way is up in short rates and the forint could maintain a strengthening trend, in the view of economists at ING.

Further front end gains and flattening for the coming days

“We affirm our call that the MNB will probably lower its step sizes in the next meetings as the just announced new measures will slowly but surely improve the monetary transmission. We see the gradual slowdown in the tightening cycle end in a 14% terminal rate with the last hike probably coming in December 2022. At the same time, as with inflation, we see upward risks in the case of interest rates as well. This could not just mean a higher terminal rate, but an extended rate hike cycle into 2023.”

“We anticipate further front-end gains and flattening for the coming days before the dust settles. However, the NMB hiking cycle is about to peak while the market boosts hawkish stance expectations. The priced in terminal rate has moved to 14.50%. Unless we see additional pressures on the forint or inflation, the curve should start to normalise later, i.e. steepening.”

“The forint has received positive support, but the long-term effect of the measures announced today is questionable and it is necessary to wait for details. Nevertheless, the forint should benefit from this decision in the coming days in any case. In the second half of September, however, we expect attention to return to the EU funds negotiations.”