The National Bank of Hungary is likely to keep interest rates at 6.50% during its next meeting. However, there is a 60% chance of a rate cut in February, based on market predictions influenced by January’s inflation data. The EUR/HUF exchange rate is expected to stabilize around 385 as the market anticipates possible changes in policy. Analysts think that there will be no changes at today’s meeting, which could set the stage for future rate cuts.

FXStreet Insights

FXStreet Insights come from a team that collects information from various market experts. These insights include notes from businesses and viewpoints from both internal and external analysts. FXStreet also includes legal disclaimers, highlighting risks related to market information. They stress that their content is not investment advice and encourage thorough research before trading. We expect the National Bank of Hungary to maintain its policy rate at 6.50% this week, but we are particularly interested in the high likelihood of a rate cut in February. The market currently sees about a 60% chance of a cut next month, making the guidance from this meeting very important. Any hints of a softening stance could lead to market adjustments. The case for easing monetary policy has strengthened over the past year. Headline inflation in Hungary has decreased significantly, from over 17% in early 2025 to just 5.5% in December 2025. This rapid drop gives the central bank much leeway to start cutting rates to help the economy.

Strategic Market Moves

Given the uncertainty around when the first cut will occur, we suggest buying short-term volatility on the forint as a smart move. Buying EUR/HUF straddles that expire after the February meeting could be effective, as this strategy would benefit from a large price movement in either direction, whether the bank cuts rates or surprises with a hold. If a clear cutting cycle starts, we predict the EUR/HUF pair may test levels above the 385 stabilization point. Looking back to 2024, the pair often traded above 390, indicating potential for further forint weakness. We see buying EUR/HUF call options as a cost-effective way to prepare for this possible upside. Moreover, the anticipated policy shift will also affect interest rate derivatives. We expect forward rate agreements to begin pricing in a series of cuts throughout 2026. Traders should seek opportunities to receive fixed rates on Hungarian interest rate swaps, positioning for lower short-term rates in the upcoming quarters. Create your live VT Markets account and start trading now.

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