Hungarian Forint Outlook (1-3 Month) – Cautious easing

On May 26, NBH continued its easing cycle, cutting another 15bps. In line with its statements last month, NBH cited that "a cautious approach to monetary policy is warranted" (NBH's Press Release, May 2015). It reaffirmed that it will continue cutting rates and an easing bias will persist for "anextended period" to reach its inflation target of 3.0% (NBH, May 2015). NBH also noted that the economy is running below its potential level. Building on our view from May, we are predicting NBH to continue cutting in increments of 15bps on the back of a stronger forint against the euro.

"This is despite that EUR/HUF has continued to trend higher after reaching a low of 295.62 on April 15. Rather, a reversal in this trend. Additionally, NBH's expectation of only moderate inflationary pressures and previous downside inflation surprises (except for April) are likely to add to NBH's dovish stance", says RBC Capital Markets.