The National Bank of Hungary is expected to hold rates at 6.50% in its next meeting. However, there is a projected rate cut in February, with a 60% likelihood that this will occur, according to market expectations driven by January inflation data.
The EUR/HUF is forecasted to stabilise around 385, as the market prepares for potential policy shifts. Analysts believe today’s meeting will result in no changes, marking a possible precursor to future rate cuts.
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We see the National Bank of Hungary holding its policy rate at 6.50% at its meeting this week, but our focus is shifting to the strong possibility of a rate cut in February. The market is currently pricing in about a 60% chance of a cut next month, making the forward guidance from this meeting extremely important. Any dovish language could be a catalyst for repricing.
The case for easing monetary policy has grown stronger over the past year. We saw headline inflation in Hungary fall dramatically from peaks above 17% in early 2025 to just 5.5% in the final reading for December 2025. This rapid disinflation gives the central bank significant room to begin a cutting cycle to support the economy.
Strategic Market Moves
Given the uncertainty around the exact timing of the first cut, we believe buying short-term volatility on the forint is a prudent strategy. Purchasing EUR/HUF straddles expiring after the February meeting could be effective. This position would profit from a significant move in either direction, whether the bank cuts as expected or delivers a surprise hawkish hold.
For a more directional view, we see the EUR/HUF pair likely testing levels beyond the 385 stabilization point if a clear cutting cycle is confirmed. Looking back at 2024, the pair traded comfortably above 390 for extended periods, suggesting room for further forint weakness. We consider buying EUR/HUF call options a cost-effective way to position for this potential upside.
Beyond the currency market, the expected shift in policy directly impacts interest rate derivatives. We anticipate that forward rate agreements will begin to more aggressively price in a series of cuts throughout 2026. Traders should look for opportunities to receive fixed on Hungarian interest rate swaps, positioning for lower short-term rates in the coming quarters.
