Emerging Insight: London Small Talks – what did we learn for EM?

Research evidence excerpt

Emerging Insight: London Small Talks – what did we learn for EM?

The National Bank of Hungary (NBH) is maintaining a hawkish stance given elevated

external uncertainty and the intention to strengthen its credibility ahead of a Consumer

Price Inflation (CPI) target change. This suggests a risk of a one- to two-month delay to

our current expectation for a 25bp rate cut on 23 June. Combined with the lack of strong

pushback from the authorities on Hungarian Forint (HUF) strength, a hawkish National

Bank of Hungary (NBH) means the HUF can continue to appreciate gradually, although

the NBH could offset this with some discreet intervention.

2026 budget deficit not to derail EUR aspiration

With the 2026 deficit much higher than expected, at around 6.8% of Gross Domestic

Product (GDP) versus the pre-election consensus of below 6%, the new government will

focus on three pillars of fiscal consolidation in order to meet the 3% Maastricht criterion

by 2030: reducing wasteful spending, increasing European Union (EU) funds utilization,

and lowering interest costs. There could be savings of 2–3% of GDP from reducing

corruption in the procurement process, according to authorities. Greater use of EU funds

instead of the national budget for investment could save around 1% of GDP (with EUR8–

9bn in EU funds expected in late 2026). A 200bp decline in bond yields could reduce

interest expenditure by around 1% of GDP by 2030. Elsewhere, more than 1% of GDP in

one-off expenditure in 2026 will drop out next year.

The authorities are cautious not to count on any positive budgetary impact from higher

GDP growth, which we estimate could amount to nearly 0.5% of GDP. In the longer term,

a funding strategy shifting away from retail financing toward Eurobonds could further