Hungarian central bank seen pausing rate cuts amid forint wobbles
reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?s=GCR01+46+D&st=Menu+G+C Reuters Hungary central bank rate forecasts
reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=HUCPIAP Reuters Hungary average inflation forecasts
reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=HUGDPAP Reuters Hungary GDP forecasts
By Gergely Szakacs
BUDAPEST, Oct 18 (Reuters) -Hungary's central bank is widely expected to pause rate cuts at 6.5% HUINT=ECI next Tuesday despite inflation hitting its 3% target for the first time since 2021, after recent falls in the forint EURHUF= raised fears of a rebound in price growth.
Even after cuts totalling 11.5 percentage points since May 2023, Hungary's benchmark interest rate is the highest in the European Union, with the National Bank of Hungary (NBH) now headed for what could be an extended pause in rate cuts.
The forint has eased 6.5% versus the euro since the NBH started easing and plumbed 18-month-lows past the psychological 400 mark this month, pressured by an escalation of the conflict in the Middle East and a shift in the U.S. rate outlook.
Despite repeated verbal interventions by Deputy Governor Barnabas Virag, with the latest coming less than a week ahead of the Oct. 22 rate meeting when the bank usually refrains from commenting on policy, the forint is stuck around the 400 mark.
It has fallen more than 4% versus the euro this year alone, making it the worst performer in central Europe, with the NBH concerned over what it now sees as a stronger link between the weakness of the currency and stronger inflationary pressures.
"Despite weaker inflation and growth, we now expect the NBH to leave its key policy rate unchanged at its October meeting," Morgan Stanley economist Georgi Deyanov said.
"Financial market volatility and a weaker HUF should keep the central bank on the cautious side," he said. "Nonetheless, we continue to expect one more 25bp rate cut until year-end."
Falls in the forint forced the bank into emergency rate hikes in late 2022 to shore up the currency, which Goldman Sachs economists have described as the "binding constraint" on the pace of further rate cuts due to its high volatility.
All but one of 13 economists surveyed between Oct. 14 and 18 expect the NBH to leave its base rate steady at 6.5% on Tuesday, with one analyst projecting a 25-basis-point cut. Economists see one more 25-bp rate reduction to 6.25% by the end of 2024.
September inflation fell to the bank's 3% medium-term target for the first time since 2021, while Economy Minister Marton Nagy warned this week that third-quarter economic growth was probably "close to zero," signalling a weak recovery.
However, analysts polled by Reuters see disinflation stalling next year, with average price growth seen at 3.8%, unchanged from 2024 levels, although sharply down from its highs exceeding 25% in the first quarter of last year.
Reporting by Gergely Szakacs
Editing by William Maclean
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