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HUF: Another downside surprise in inflation – ING

This morning, Hungarian inflation for June showed a drop from 4.0% to 3.7%, roughly in line with the central bank’s and our forecasts, but two-tenths below market expectations. The June figure is the first inflation data after the National Bank of Hungary announced a pause in its rate-cutting cycle, so we expect increased market attention, notes Frantisek Taborsky, FX analyst at ING.

More weakness for the HUF

“While we do not expect rate cuts in the second half of the year in theory, it is clear that if conditions permit, the NBH will not hesitate to use them. The first inflation figure opens the door, but the coming months may be more challenging given our expectation of a pick-up in inflation.”

“Yesterday’s budget figures in Hungary showed a further deterioration, but at the same time, the government announced new fiscal measures to improve the budget this year and next. In our view, this could cover the fiscal risk we saw earlier and the current official target of a government deficit of 4.5% of GDP could be achieved.”

“Yesterday’s depreciation of the HUF was triggered more by the announcement of tax changes for banks and the resulting sell-off in the stock market. However, rates were already slowly falling yesterday and today’s inflation figure will most likely increase market bets on rate cuts in the second half of the year. And this should result in further weakness for the HUF.”

Source: Fx Street

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