The National Bank’s decision may wreak havoc on Hungarian forint – UPDATE: HUF 400/EUR comes!

The Monetary Council of the Hungarian National Bank (MNB) is anticipated to announce another reduction in the base interest rate today. However, even slight deviations in the details could precipitate a significant fluctuation against the euro.

According to index.hu, Governor György Matolcsy and the Hungarian National Bank are gearing up for a pivotal decision that will impact the markets and the exchange rate of the Hungarian forint.

The monetary council is expected to implement a 75 basis point interest rate cut today, a move that could potentially strengthen the Hungarian forint. Currently, the national currency hovers around the 389-390/EUR mark. Nevertheless, should the interest rate cut deepen to 100 basis points, a decline may ensue once more. Zoltán Varga, a senior analyst at Equilor Investments Ltd, said that if the decision indeed entails a 100 basis point interest rate cut, the forint would breach the 390 threshold and reach 395/EUR.

Varga noted that while the consensus among experts leans towards a 100 basis point rate cut, he anticipates a reduction of 75 basis points.

Barnabás Virág, Deputy Governor of the MNB, confirmed that both scenarios—a 75 basis point or 100 basis point rate cut—are under consideration. In January, the Monetary Council was anticipated to implement a 100 basis point reduction but ultimately settled for 75 basis points.

Virág told index.hu that one argument in favour of the 100 basis point cut is the low inflation data for January. However, the decision-making process could be influenced by the extension of the interest rate cut programme by both the Federal Reserve (FED) and the European Central Bank (ECB), which suggests a more measured approach.

The MNB’s base rate affects loan interest rates, inflation and real wages in Hungary, Virág added.

Dániel Molnár, an analyst at the Makronóm Institute, suggested that if positive developments were to emerge from the Hungarian economy and both the FED and ECB opted for a rate cut, the forint could strengthen to the 385/EUR level. Currently, the forint hovers around the psychological threshold of 390/EUR as of Monday.

UPDATE1 – Egyensúly Institute: HUF 400/EUR comes!

According to the Egyensúly (Balance) Institute, the forint will continue to lose its value against the EU currency. That is because of the Hungarian National Bank’s base interest rate decreasing program. The MNB does so because of the lowering inflation, but the result is expected to be a weak forint.

Portfólió, a Hungarian economy-focused news outlet, shared the institute’s prognosis for 2024 and 2025 concerning the forint. They say that this year, the forint will move in the HUF 393-401/EUR level, while in 2025, it will be in the HUF 403-418 category.