NBH's dovish rate decision likely to push EUR/HUF up

Hungary's CenBank held rates unchanged at yesterday's MPC meeting as was widely expected, while moving to its new 3-month deposit benchmark rate from the old 2-week deposit rate, the change had been carefully pre-communicated, hence brought little surprise to the market. 

Somewhat more surprising was the downward revision to 2015 GDP and CPI forecasts in the new Q3 Inflation Report, NBH is revising its 2015 growth forecast down from 3.3% to 3.2% and inflation forecast down from 0.3% to zero, 2016 growth is forecast at 2.5% and inflation at 1.9%, the latter also revised down from 2.4%. 

These represent all-round dovish revision to forecasts, which are found surprising because, at this stage of the cycle, risks should more or less have been fully discounted. Is NBH acting prematurely based on Chinese economic developments? Or is the noticeable loss of economic momentum in Hungary in the past month sending panic signals to the CB? 

"In any case, despite the fresh dovish tone, the rate easing cycle is not seen being re-opened anytime soon. Nevertheless, the freshly dovish language will likely push EUR-HUF up towards our 315.00 year-end target", says Commerzbank.