MNI POLICY: FX Key To Next NBH Rate Move As Forint Slides

The chances of a second successive rate cut by the National Bank of Hungary at its next policy meeting are falling as the currency comes under fire during a broad risk-off move, MNI understands.

The Hungarian currency weakened 2.6% to 390 to the euro at 3:34 pm in London. While the impact of the conflict in Iran will not be incorporated into March’s inflation report, as data collection for the NBH’s spring macroeconomic projections ended on Feb 20, it will refer to disruption in the Middle East and stress increased risks, after a period during which the forint had held stable at about 380.

Still, NBH officials were surprised at ECB chief economist Philip Lane’s suggestion in an interview that inflation could spike and the economy slow in Europe, a conclusion they regard as premature, MNI understands. (See MNI EM INTERVIEW: NBH Seen Cutting 25BP in February, March Open)

Former governor Andras Simor told MNI that policymakers would be “highly unlikely” to take into consideration a supply shock that is so uncertain in its duration. 

“I think this unfortunate event will have no bearing on their decision, unless something more significant and durable develops between now and the meeting. In such a case, the Monetary Policy Council can react, even without the report,” he said.

“Everything depends on how long the war lasts,” former NBH deputy governor Julia Kiraly also told MNI. “In March, if I were an MPC member, I would vote for a wait-and-see approach.” (See MNI EM INTERVIEW: NBH To Cut In Feb, Then Wait And See - Kiraly)

“Both the oil price and the forint have a significant effect on inflation, so unless the Iran war resolves very quickly, rate cuts should be paused for the foreseeable future,” ex-NBH Head of the Research Istvan Konya said.

The NBH lowered policy rate by 25 basis points to 6.25% at its meeting on Feb 24, with the risks to the inflation outlook seen as "balanced."