The Hungarian National Bank will meet next Tuesday, giving the HUF more market attention than usual. EUR/HUF touched almost 388, however yesterday it bounced to 382. Apart from the central bank meeting oscillating between a 75bp and 100bp rate cut, there is another story in the background. The Economy Minister proposes a change to the BUBOR money market interest rate, which would be replaced by Treasury bill yields for pricing corporate loans. For now, this is just a proposal, but it triggered an exchange between the minister and the central bank, which contributed to higher EUR/HUF volatility yesterday.
At the end of the day yesterday, the HUF was stronger, but we also saw rallies elsewhere in the region, so the market conclusion is not entirely clear here. Looking ahead, a decline in EUR/HUF is good news for the central bank and may increase the pace of rate cuts to 100 basis points next week (which is now our baseline view). The interest rate differential has increased in favor of the HUF in the last two days, which should stop the recent sell-off. However, the situation is not good in the current environment and furthermore a stronger US dollar after yesterday is not good news for the HUF and the CEE region.