(Bloomberg) -- Hungary’s central bank is ready to pause interest-rate cuts for a “sustained period” if the inflation outlook and global markets require it, Deputy Governor Barnabas Virag said. The forint rose against the euro.
The new guidance from Virag on Thursday stepped up the hawkish messaging from the National Bank of Hungary, which has sought to stem a decline in the currency that touched an 18-month low against the euro earlier this month. Virag last week all but ruled out a rate cut at the next central bank meeting on Oct. 22.
“The MNB may not only pause interest rate cuts in October,” Virag said at a conference organized by Portfolio news website in Budapest, using the Hungarian acronym for the bank. “If the external environment and inflation outlook justify, the base rate may stay unchanged for a sustained period, raising our interest premium.”
The forint rose as much as 0.4% against the euro after Virag spoke, to the strongest in a week, before paring gains. Traders had already all but priced out rate cuts for this year after the forint’s plunge, according to forward-rate agreements.
The central bank cut the key interest rate by a quarter-point last month to 6.5%, still tied with Romania for the highest benchmark in the European Union. That followed an easing cycle spanning more than a year, with only a brief pause in August.
The room for further monetary easing has narrowed due to emerging-market headwinds from geopolitics and changed US rate expectations, which pose upward inflationary risks, Virag said.
While Virag’s guidance “dented momentum” in the increasingly popular trade betting on the forint’s weakening against the euro, the currency was “not out of the woods yet,” cautioned Piotr Matys, a senior analyst at InTouch Capital Markets. A Donald Trump victory in US presidential elections next month could fuel another bout of forint weakness, he said.
High Enough?
“Even without further cuts, rates aren’t high enough to prevent investors putting on forint shorts,” said Malin Rosengren, a London-based portfolio manager at RBC Bluebay.
Price-growth, which slowed to the central bank’s 3% target last month, is expected to accelerate again in the rest of year to 4.2% in December, according to the latest central bank forecasts.
Service-sector inflation is a particular concern, which remains stuck at multiples of the headline inflation rate, Virag said.
“Meeting the inflation goal in a sustained way and preserving financial-market stability are key,” Virag said. “For this we need cautious, strict, stability-oriented monetary policy.”
(Updates with analyst comments in seventh and eighth paragraphs.)
©2024 Bloomberg L.P.