Some good-looking fiscal data and the negative forint impact of the ugly Middle East situation

HUNGARY - In Brief 02 Oct 2024 by Istvan Racz

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Starting with the bad news, the forint has just been kicked out of its cosy EURHUF 390-395 range it held for quite a while, to quite unnervingly close to the 400 line, which the MNB obviously will not want to see being crossed, for the potential, and even likely, negative impact on domestic inflation perceptions. This is supposed to be international, having to do with the bad situation in the Middle East, from which energy importers like Hungary usually suffer. PLN, CZK, RON all appear to be weakening as well. Even though this month's rate-setting meeting (October 22) is still a bit further away, it is probably still correct to note that things are moving towards the Monetary Council prospectively holding the base rate on that occasion, unless the currency market situation improves significantly by then. This would not go against our standing forecast at all, as we have expected no rate change for October and a 25 bps cut in November, which would be the last rate action in the rest of 2024. On other things, the KSH data for the Eurostat-method (accrual-terms) general government balance for H1 2024 has just been released. This shows a deficit of 3.9% of GDP, quite sharply down from 6.3% in the corresponding period of last year. As a reminder, the annual deficit target is 4.5% of GDP, down from the actual 6.7% in 2023. Simultaneously, the government raised this year's cash-based central government deficit target to 6% of GDP from the original 4.9%, against last year's 6.9% actual figure. But there is not really much novelty to be seen here: the new target figure includes the cash cost of the Budapest Airport acquisition, whereas the old one did not. Asked on this occasio...