Risk Perspective February/2025: An NHB hike this year? Not there yet but not ruled out!
We expect Hungary’s inflation to be much higher than what the NBH and consensus expects for this year. This out-of-consensus forecast is consistent with no cuts this year. If anything, our model suggests that there could be some limited hiking premium. EURHUF may move lower on a more hawkish NBH, although the big HUF discount that existed at the start of the year has completely disappeared.
We update our inflation outlook following the significant upward surprise in Hungarian inflation this week. We also consider the stronger FX as well changes in other relevant variables. The inflation outlook remains challenging: we currently do not expect headline nor core inflation to return to the target band until 2Q26. Our models point to headline inflation declining gradually from 5.5% to 4.9% in March. Headline should then reaccelerate from 3Q25 due to base effects and reach a 5.7% YoY average peak in 4Q25. The disinflation process then resumes in 1Q26.
Figure 1: Hungary Inflation – %YoY
This expected reacceleration in headline is driven by (1) a reacceleration in core and (2) a rebound in non-core inflation which averaged a low 1.5% YoY in 3Q24. The reacceleration in core is due to a deterioration in inflation expectations, an increase in TTF prices and base effects linked to the 4Q24 dip in core that should revert in 4Q25.
Figure 2: Hungary Inflation Forecasts – %YoY
Following this update, our inflation outlook remains significantly more adverse than that expected by the NBH and consensus. If our outlook materializes over time, the NBH is done cutting and might even need to consider hiking at some point. The interest rate rule used in our model suggests Bubor would need to rise from 6.5% to 7.1% by year-end. It would then gradually move back to its current value by 2Q26 as inflation eases. Such gradual up-then-down dynamics suggest the NBH may opt to keep the policy rate unchanged throughout the next quarters. However, if the outlook deteriorates from here, the difference between an interest rate rule and current Bubor may widen to levels that would require policy action.
Figure 3: Hungary Inflation %YoY with Noncore
Source: Bevon Thomas, Bloomberg
Figure 4: Hungary 3M Bubor – %
Market implications: The HUF front-end prices in one -25bps cut for this year. Our higher-than-consensus CPI view suggests that the NBH won’t have space to cut at all this year unless the scenario changes. If anything, our base case is consistent with some limited hiking premium. Therefore, we still see scope for an additional move higher in the front-end despite the adjustment that already took place.
Figure 5: EURHUF Spot vs Model
As for FX, HUF is now trading with a premium relative to our short-term FX models for the first time since July. While a more hawkish NBH should support the currency, the big discount that existed at the start of the year has now completely disappeared.
Disclaimer: This document does not constitute a communication that is an invitation or inducement to engage in investment activity (or financial promotion). It is intended for viewing by clients of Bevon Thomas that are reasonably believed o be eligible counterparties or professional clients under the Securities Act of 1933, the Securities Act of 1934, the Spanish securities market law or the French monetary and financial code. Persons not falling within the above descriptions must not act upon or rely on the contents of this document. The contents of this document are for informational purposes only and do not constitute investment advice nor an inducement to trade.
This document does not constitute a communication that is an invitation or inducement to engage in investment activity (or financial promotion). It is intended for viewing by clients of Bevon Thomas that are reasonably believed o be eligible counterparties or professional clients under the Securities Act of 1933, the Securities Act of 1934, the Spanish securities market law or the French monetary and financial code. Persons not falling within the above descriptions must not act upon or rely on the contents of this document. The contents of this document are for informational purposes only and do not constitute investment advice nor an inducement to trade.
Risk Perspective February/2025: An NHB hike this year? Not there yet but not ruled out!
We expect Hungary’s inflation to be much higher than what the NBH and consensus expects for this year. This out-of-consensus forecast is consistent with no cuts this year. If anything, our model suggests that there could be some limited hiking premium. EURHUF may move lower on a more hawkish NBH, although the big HUF discount that existed at the start of the year has completely disappeared.
We update our inflation outlook following the significant upward surprise in Hungarian inflation this week. We also consider the stronger FX as well changes in other relevant variables. The inflation outlook remains challenging: we currently do not expect headline nor core inflation to return to the target band until 2Q26. Our models point to headline inflation declining gradually from 5.5% to 4.9% in March. Headline should then reaccelerate from 3Q25 due to base effects and reach a 5.7% YoY average peak in 4Q25. The disinflation process then resumes in 1Q26.
Figure 1: Hungary Inflation – %YoY
This expected reacceleration in headline is driven by (1) a reacceleration in core and (2) a rebound in non-core inflation which averaged a low 1.5% YoY in 3Q24. The reacceleration in core is due to a deterioration in inflation expectations, an increase in TTF prices and base effects linked to the 4Q24 dip in core that should revert in 4Q25.
Figure 2: Hungary Inflation Forecasts – %YoY
Following this update, our inflation outlook remains significantly more adverse than that expected by the NBH and consensus. If our outlook materializes over time, the NBH is done cutting and might even need to consider hiking at some point. The interest rate rule used in our model suggests Bubor would need to rise from 6.5% to 7.1% by year-end. It would then gradually move back to its current value by 2Q26 as inflation eases. Such gradual up-then-down dynamics suggest the NBH may opt to keep the policy rate unchanged throughout the next quarters. However, if the outlook deteriorates from here, the difference between an interest rate rule and current Bubor may widen to levels that would require policy action.
Figure 3: Hungary Inflation %YoY with Noncore
Source: Bevon Thomas, Bloomberg
Figure 4: Hungary 3M Bubor – %
Market implications: The HUF front-end prices in one -25bps cut for this year. Our higher-than-consensus CPI view suggests that the NBH won’t have space to cut at all this year unless the scenario changes. If anything, our base case is consistent with some limited hiking premium. Therefore, we still see scope for an additional move higher in the front-end despite the adjustment that already took place.
Figure 5: EURHUF Spot vs Model
As for FX, HUF is now trading with a premium relative to our short-term FX models for the first time since July. While a more hawkish NBH should support the currency, the big discount that existed at the start of the year has now completely disappeared.
Disclaimer: This document does not constitute a communication that is an invitation or inducement to engage in investment activity (or financial promotion). It is intended for viewing by clients of Bevon Thomas that are reasonably believed o be eligible counterparties or professional clients under the Securities Act of 1933, the Securities Act of 1934, the Spanish securities market law or the French monetary and financial code. Persons not falling within the above descriptions must not act upon or rely on the contents of this document. The contents of this document are for informational purposes only and do not constitute investment advice nor an inducement to trade.
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This document does not constitute a communication that is an invitation or inducement to engage in investment activity (or financial promotion). It is intended for viewing by clients of Bevon Thomas that are reasonably believed o be eligible counterparties or professional clients under the Securities Act of 1933, the Securities Act of 1934, the Spanish securities market law or the French monetary and financial code. Persons not falling within the above descriptions must not act upon or rely on the contents of this document. The contents of this document are for informational purposes only and do not constitute investment advice nor an inducement to trade.