Hungarian inflation remains the only downside surprise in the CEE region – ING

Inflation numbers from Hungary this morning should show an increase from 3.2% to 3.8% YoY, slightly above market expectations, and in line with the National Bank of Hungary (NBH) forecast, ING’s FX analyst Frantisek Taborsky notes.

Market is pricing in little NBH easing in the coming years

“Although at first glance inflation developments in Hungary look favourable for the central bank, we think they will be of little relevance for next week’s meeting. Nevertheless, Hungarian inflation remains the only downside surprise within the CEE region. Still, EUR/HUF has the main attention.”

“Friday’s rating outlook upgrade from negative to stable from Fitch brought visible relief to the HUF yesterday and we believe the currency has put the worst behind it. Positioning seems already strongly on the short side at the moment, while Hungarian government bonds have seen new inflows in recent days. Moreover, December is seasonally positive for EUR/USD and CEE currencies, which could provide some relief after two months of stress in the HUF market.”

“Although in the medium term we believe EUR/HUF will grind further higher towards 420, tactically by year-end short positions could see some profit-taking. At the same time, the market is pricing in little NBH easing in the coming years following the sell-off in November with two to three 25bp rate cuts, which is significantly less than we forecast. Thus, yesterday’s signs of calm in the HUF market could indicate a broader rally in HUF assets into year-end with attractive valuations.