Hungarian and Czech central banks expected to hold rates steady this week

Bank of America forecasts that both the National Bank of Hungary (NBH) and the Czech National Bank (CNB) will maintain their key interest rates this week, at 6.50% and 3.50% respectively. This expectation for policy continuity from BofA's Mai Doan diverges from market pricing, which anticipates approximately 9-10 basis points of cumulative rate reductions in both Hungary and the Czech Republic by the end of 2025.

Analysis

A notable divergence is emerging between Bank of America's (BofA) forecasts and market pricing for near-term monetary policy in Hungary and the Czech Republic. BofA projects that both the National Bank of Hungary (NBH) and the Czech National Bank (CNB) will maintain their key interest rates at 6.50% and 3.50% respectively in their upcoming September meetings. This stance of policy continuity, articulated by BofA's economist, directly contrasts with current market expectations. Rate markets are pricing in a modest easing cycle, anticipating approximately 10 basis points of cumulative cuts in Hungary and 9 basis points in the Czech Republic by the end of 2025. This discrepancy sets the stage for a potential market repricing event should the central banks align with BofA's view and deliver a hawkish hold, thereby challenging the market's dovish bias.

Key Decisions for Investors

• Investors with exposure to Hungarian Forint (HUF) or Czech Koruna (CZK) should monitor the upcoming central bank meetings, as a decision to hold rates steady, in line with BofA's forecast, could trigger short-term currency strength.
• Consider tactical positions that could benefit from a hawkish surprise; if the NBH and CNB hold rates, this would defy market pricing for cuts, potentially leading to a sell-off in short-term Hungarian and Czech government bonds.
• Pay close attention to the forward guidance and commentary from both central banks, as any language confirming a higher-for-longer policy path would validate BofA's view and signal a sustained divergence from priced-in market expectations for easing.