Central European Daily

Although immediate reaction of the forint to the 16th rate cut in a row was limited on Tuesday, further speculation on how far the NBH would go in its monetary easing pushed the Hungarian currency to its 2-week low. While as late as in July Governor Matolcsy spoke about the bottom of base rate between 3.5 and 3%, now it is clear that, given low inflation, a lower ECB rate as well as only gradual recovery of the economy, the risk of a sharper base rate reduction increased. Nevertheless, due to frequently demonstrated vulnerability of the forint, we believe that if further base rate cuts actually come, they will be delivered in smaller steps than so far.