Politics comes into play in Hungary (May 10)

Concerns that the new government in Hungary will jeopardise the independence of the National Bank appear to be coming to fruition. While much remains uncertain, it seems clear that PM Orban will now seek to remove Governor Simor, who is well respected in the markets, as the head of the Bank. Coupled with the ongoing turmoil in the euro-zone, this is likely to keep the forint under pressure. While the situation remains in flux, the final 25bps rate cut that we had pencilled in for this month is unlikely to materialise if the currency remains at current levels (around 280/euro). Either way, however, we are sticking to our nonconsensus view that rate hikes are unlikely within the next two years.