NBH Signals Support for Further Forint Gains Amid Inflation Target Revisions

Hungary's central bank, the National Bank of Hungary (NBH), has signaled support for further gains in the country's currency, the forint. According to analysis from Bank of America, the NBH sees continued appreciation of the forint as a key element of its strategy to achieve its revised inflation target.

The NBH noted that nominal foreign exchange appreciation can offset persistently high services inflation differentials versus the euro area created by strong wage convergence. However, it also emphasized that Hungary's wage growth must normalize toward levels consistent with productivity growth, currently running at 7-8% year-over-year.

The central bank acknowledged significant underperformance of forint real exchange rates versus Central and Eastern European peers over the past decade. Nevertheless, its analysis found no identifiable long-term link between nominal appreciation and export performance across the European Union.

Going forward, the new government will have to decide whether to follow through on Fidesz's plan to raise the minimum wage substantially in 2027 by 14%, which is subject to renegotiation should growth or inflation deviate from projections.