Central European Daily

The year 2014 has been started with HUF weakening and the EUR/HUF pair moved from the levels around 296 at the end of 2013 close to 300 within 5 days. The move confirmed our view that the EUR/HUF is still traded in a range of 295 and 303, but the latest move of the EUR/USD suggests that the HUF may be sensitive if USD starts to strengthen substantially. The National Bank of Hungary highlighted after the last rate setting meeting – the base rate was cut from 3.2% to 3% – that more cautious monetary policy required, which suggests that the rate cut cycle may slow from the 20bp steps to 10bp steps. There are still question marks how the government would like to solve the problem of the foreign currency denominated loans in the household sector. Although we don’t expect a radical solution in short term it may weaken the HUF.