Hungary’s inflation on Thursday surprised slightly, rising from 3.7% to 4.1%, but it was still a bigger surprise than the Hungarian National Bank’s (NBH) forecast of 3.8% year-on-year, notes Frantisek Taborsky, ING currency strategist.

At least three more cuts this year

“Given the rally we have seen in the HUF interest rate market in the past weeks, it is not surprising that the market has started to re-price the current dovish expectations of central bank rate cuts. Still, the market is pricing in at least three cuts or even a bit more than that, with the chance that we will see some movement this month.”

“That said, our economists say that inflation data does not suggest a rate cut in August and sees room for only two more rate cuts this year. While we believe the market will remain on the dovish side of market pricing, there is some room for profit taking and re-pricing. HUF thus gets some boost to earnings after two weeks of depreciation.”

“Yesterday we already saw a decline in the EUR/HUF pair, the largest in the CEE region, and today we expect a further decline below 396, and possibly even more if interest rates remain constant.”