The Hungarian forint retreated against the U.S. dollar and euro ahead of the National Bank of Hungary (MNB) rate decision, amid expectations the bank would slash its interest rate further to bolster inflation.
The bank slashed its benchmark interest rate in March by 0.15 of a percentage point to 1.95% for the first since July, and then cut the rate again in April to a new record low of 1.8 percent.
Analysts predict the bank to cut another 0.15 basis points during the policy meeting held on Tuesday, which will be followed by a monetary policy statement.
With annual inflation rate at minus 0.3 percent, following a 0.6 percent drop in March, the bank is likely to resume its interest rate cut to combat deflationary pressures stemming from the tremendous fall in oil prices.
“All in all, I think there is still room for rate cuts,” MNB Deputy Governor Adam Balog told Gazdasagi radio on May 12.
While the outlook for Hungary’s growth has improved after the drop in oil prices and with the pickup in both domestic and foreign demand, cutting interest rates will prevent the forint to appreciate, which would reinvigorate growth.
The forint has advanced versus the euro since mid-January, where the rally has strengthened after the ECB’s bon-purchases program in March.
However, the euro started to rebound by mid-April after the improvement in euro area economic data.
The forint retreated against the euro to trade around 307.90, where the trading is within the upside channel depicted on the chart.
The forint showed some strength against the U.S. dollar since mid-March, but remains the worst performing currency in emerging Europe.
The USDHUF is meanwhile trading higher around 280.60 after the breach of the resistance line depicted on the daily chart.