EUR/HUF likely to trade higher over the coming year on MNB’s easier policy stance, says Commerzbank

The EUR/HUF currency pair is expected to trade higher over the coming years, guided by the view that central bank of Hungary (MNB) will maintain an easier monetary stance than the European Central Bank (ECB), Commerzbank reported.

Senior MNB policymakers elaborated on Hungary's medium-term inflation outlook in a published article yesterday. Core inflation could accelerate to as fast as 3 percent y/y in the short-term; but, this would be temporary, and driven mostly by base-effect and commodity price movements.

Commodity prices have significant bearing even on core inflation: categories such as tobacco and alcohol, which are seeing price increases at the moment, are classified within core inflation in many emerging markets, including Hungary. What is more, food processing is a major industry in Hungary whose pricing is correlated with that of commodity prices, in particular, milk prices -- calculating "core" inflation does not remove all of the effects.

"We, too, forecast that inflation will moderate to below 2 percent again in 2018. Such guidance should have had a mild weakening effect on the forint because, under this scenario, monetary policy can remain ultra-easy for longer," the report commented.

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