Hungary Looks to June for Potential Rate Move on Strong Forint

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(Bloomberg) — The forint’s post-election rally should give the central bank an opportunity to reassess its cautious monetary policy, Vice Governor Zoltan Kurali said, signaling that an interest-rate cut as early as June could be on the cards.

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The Hungarian currency has staged one of the biggest rallies among emerging-market currencies, appreciating 8% against the euro this year, as Prime Minister Viktor Orban was ousted after 16 years in a ballot last month.

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“We consider this as something that improves our room to maneuver,” Kurali said of the forint gains at a Bloomberg Future of Finance event in Warsaw Thursday. “But we need to get certainty and we need to reassess the situation and because we are not in a hurry, we are sort of in a wait and see mode.”

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The election ushered in a new government that’s pledged to put budget spending on a sustainable path, access $20 billion in frozen European Union funds and put the economy on a path to euro adoption.

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The currency strength helps the central bank keep inflation in check and may offer policy room when officials meet on June 23, the day that new central bank projections are also released, Kurali said. Inflation had been forecast to exceed the 4% top-end of policymakers’ inflation tolerance band this year. 

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Euro Plans

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The forint gained further as Kurali spoke, advancing 0.8% against the euro as the deputy governor backed the new government’s plans for putting the country on the path to euro entry — a major driver for the currency rally.

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Hungary is “more ready than before” to adopt the common European currency, Kurali said. There is “massive” public support for such a move, he said, in a country that’s seen a dramatic currency depreciation during Orban’s rule.

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Concerns about the inflationary impact of soaring energy prices from the Iran war are making central banks elsewhere reluctant about monetary easing and pushing some toward tightening. Norway hiked its key rate on Thursday by quarter-point to 4.25%, the first tightening step since 2023. 

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Poland’s central bank Governor Adam Glapinski said on Thursday the likelihood of interest rate increases has grown over the past month.

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Hungary’s central bank has been cautious about the timing for resuming cuts to the 6.25% key interest rate, the second-highest benchmark in the European Union after Romania. It’s far higher than regional peers Czech Republic and Poland, whose levels are at 3.5% and 3.75%, respectively.

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That may have to change, if the Iran war winds down and second-round inflation is seen to be contained, according to Piotr Matys, a currency strategist at In Touch Capital Markets. 

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He said persistent hawkishness on the part of the central bank would lead to the forint “appreciating rapidly in the coming months and quarters” on the back of optimism about the incoming pro-EU Prime Minister Peter Magyar, who’ll take the oath of office on Saturday. 

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Hungary may “start lowering interest rates at a potentially relatively fast pace to slow down the pace of speculative inflows into Hungarian assets,” Matys said.

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