Hungary starts to the pay the price for political posturing

The past week has brought further evidence that Hungary’s government is starting to pay the price for its bellicose talk. Bond yields are rising and the forint has failed to rally in recent weeks, despite an improvement in global risk appetite. While it is not yet our central scenario, it is certainly possible that the National Bank could hike interest rates to shore up the currency – but we doubt that this would be a particularly effective strategy.