Hungary's central bank, the Magyar Nemzeti Bank (MNB), is set to lower its benchmark interest rate by 25 basis points today, bringing it to 6.0%, a move fully in line with market consensus. Analysts at Societe Generale view this cut as the opening chapter of a longer easing cycle, underpinned by a strengthening forint, benign inflation and a notably improved political backdrop that together point to the MNB rate reaching 5.0% by year-end.
Forint at Its Strongest Level Since August 2021
The EUR/HUF exchange rate has retreated to around 350, a level not seen since August 2021, reflecting a meaningful shift in confidence toward Hungary's currency. This appreciation is rooted in concrete policy changes rather than momentum alone. Hungary's government has adopted a euro-friendly fiscal stance, made visible progress on unlocking European Union funds and demonstrated credible commitment to budgetary discipline, all of which have helped rebuild foreign investor confidence.
The impact on funding conditions has been substantial. Hungary's 10-year government bond yields have fallen sharply from 7.47% in March to approximately 5.15%, now actually lower than Poland's equivalent yield of 5.41%. Swap rates have also come down to 4.81%, reflecting the broad improvement in Hungary's market standing.
Inflation Below Target Reinforces the Easing Case
Hungary's headline inflation slowed to 1.8% in May, dropping below the MNB's 2-4% target band. This undershoot removes a key constraint on further rate reductions and strengthens Societe Generale's base case that the MNB rate will fall to 5.0% by the end of the year.
Despite this anticipated easing, Hungary retains an attractive carry advantage over its regional peers. Both the Czech Republic and Poland currently operate with policy rates at 3.75%, meaning even as Hungary continues to cut, the forint should preserve enough yield appeal to keep interest from carry-focused investors intact.
Peter Magyar's Election Victory Shifted the Investment Climate
Political developments have played a significant role in the forint's recovery. The election victory of Peter Magyar in April triggered a noticeable improvement in investor sentiment toward Hungary, compressing the risk premium on Hungarian assets and giving the MNB greater latitude to pursue its easing cycle without worrying about destabilising capital outflows.
Technical Picture Points to Near-Term Caution
While the medium-term outlook for the forint looks constructive, Societe Generale's analysts caution that tactical profit-taking in the currency is likely given how stretched current positioning has become. EUR/HUF has recently touched the lower boundary of a descending channel in place since 2022, sitting at 348, a level that also functions as a key technical projection point and may provide intermittent support.
A brief bounce in EUR/HUF is already forming. The critical test ahead is whether the pair can use this bounce to build a durable base and gradually recover toward the 50-day moving average, currently positioned around 358. If EUR/HUF fails to sustain a hold above 348, Societe Generale's analysis suggests the decline could extend toward the 2021 lows in the 344 to 342 range.
