The Hungarian central bank has a rate-setting meeting yesterday, which is again a non-interesting one where economists expect a no change vote with one exception for a cut in order to indicate that the risk is on the lower side due to the ongoing IMF talks. Rise of yields on core markets did not have significant impact on the forint and it is still the best performing currency on emerging markets this year. Meanwhile, the domestic money market has already been pricing in deep rate cuts of around 50bps over the next 12-months, so most of the good news have been priced in.
We think that the Monetary Council will basically repeated the previous statement that is emphasising that taxes have not yet fed into inflation and market conditions depend on the IMF talks, which could accelerate after the new modification of the law is passed by the Parliament. In this respect investors might become somewhat more cautious about the IMF talks (taking into account the recent experience when the sharp rally in April reversed in May-June).
After the MNB meeting, Hungarian markets will be eagerly looking for the EU summit (held on Thursday and Friday) although the government said they support a closer fiscal cooperation in general only if it is only for eurozone countries.