Hungary’s scope to ease policy limited by FX debt

The weakness of Hungary’s economy, coupled with below-target inflation, means that further interest rate cuts are likely over the next couple of months. However, we think the country’s high level of foreign currency debt means that many commentators and the markets are overestimating the scope for policy easing. If anything, we think the National Bank could be forced to hike interest rates by the end of the year in order to shore up the forint.