The muted reaction of EURHUF to this morning’s CPI data underscores how the role of inflation data is taking a back seat in determining NBH policy – at least in the near term. Instead, policymakers will be fixated on the significant sell-off in HUF over the past month, during which time the forint has recorded spot losses of ~5% versus the greenback (only MXN and CLP have performed worse).

• Given that money markets have already priced out further rate cuts before year-end, the question is whether the central bank will choose to communicate the possibility of a rate hike at next week's meeting to curb a further slide in HUF. This would be a logical step given that previous policy statements avoided offering specific forward guidance, flagging uncertainty posed by upcoming decisions at major central banks and the US election. However, such a hawkish signal could attract significant political backlash - Orban's government has repeatedly piled pressure on the NBH for more aggressive easing.
• Alternatively, the Bank could decide to accompany its ‘hold’ decision with familiar rhetoric – stating that the base rate may remain at the current level for an extended period and that a careful and patient policy approach is justified. It may also choose to lean more heavily on liquidity tightening as an alternative measure to manage financial conditions having stated last month that it will continue to smooth movements in financial markets using longer term FX swap tenders and discount bill auctions in addition to those already announced on a daily basis.