Commerzbank’s Tatha Ghose reports that the MNB kept its base rate at 5.50% and maintained the overnight corridor, but seasonally-adjusted inflation suggests real rates may soon turn negative. More importantly, Prime Minister Peter Magyar’s explicit backing for Euro adoption means joining the Euro by 2032 is now Commerzbank’s base case. Ghose argues this political shift could narrow Hungary’s risk premium over coming years.
MNB policy and Euro path drive HUF
“Hungary’s National Bank (MNB) left its base rate unchanged at 5.50% yesterday and retained the 4.50%-6.50% overnight corridor. MNB cited high energy prices, rising global yields and financial-market uncertainty, while stressing that it will meet the new 2.5% inflation target within its policy horizon. MNB takes comfort from September inflation rate of 1.6%y/y and core inflation rate of 1.9%y/y.”
“Of course, these year-on-year rates are misleading: our preferred seasonally-adjusted month-on-month indicators have re-accelerated in recent months and are now running faster than target. While the rate of core HICP increase did not accelerate in September (see chart on left below), that is only because core inflation may be slower to react to the price shocks which we are dealing with now. In any case, Hungary’s real interest rate, when calculated using month-on-month inflation, may soon dip into negative. This would hardly be consistent with MNB’s stated commitment to maintaining positive real rates, especially when inflation is forecast to accelerate towards 3.1% in 2027.”
“The second, more consequential topic in yesterday’s news was about euro adoption. Prime Minister Peter Magyar’s explicit and unconditional support means that euro adoption by 2032 must now become our base-case for the forint outlook. After this timeframe, the forint exchange rate will cease to exist.”
“All in all, Magyar provided a valuable signal to the markets: Euro adoption is frequently criticised as taking away crucial monetary policy freedom from a smaller country. Accepting such a compromise in exchange for deeper integration and potential stability via ECB backstop signals a decisive break from Orban-era unilateralism. This ideological convergence alone could narrow Hungary’s risk premium in coming years.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
