CEE MARKETS-Forint hits September high as Hungary's central bank holds rates

By Krisztina Than

BUDAPEST, Sept 22 (Reuters) - The forint extended gains on Tuesday to touch its highest level this month after Hungary's central bank left the country's base interest rate unchanged, following a series of cuts, and raised its 2027 inflation forecast.

The National Bank of Hungary (NBH) also said it would lower its medium-term inflation target to 2.5% from 3%, with effect from the start of 2028.

The decision to hold steady after three successive quarter-point rate cuts, which took the main rate to 5.5%, lent support to the Hungarian forint. Major central banks such as the European Central Bank and the US Federal Reserve have recently hiked policy, leaving a narrower rate differential.

Hungary's bank raised its inflation forecast for 2027 to 3.1% from its previous outlook of 2.3% and said energy prices and an excise tax hike on tobacco would boost price growth next year.

The NBH expected inflation back near its target in its policy horizon.

Markets had put some focus on next year's outlook for price dynamics to gauge the chances of further cuts ahead or an end to the easing cycle taken in the summer months.

FORINT LEADS CEE THIS YEAR

By 1352 GMT, the Hungarian forint had extended earlier gains and traded 0.3% stronger at 360.85 to the euro. It hit a session peak of 359.85.

The forint has already outperformed its peers in Central Europe this year, firming 6.5% so far against the euro. It has mostly traded in the 360-370 range since mid-July after hitting a multi-year high past the 350 level in June.

The currency has been bolstered by the pro-European stance of Prime Minister Peter Magyar, who took power in May and put euro adoption back on the agenda. Hungarian bonds have also rallied.

A sustained rally in FX and fixed income is still uncertain given the geopolitical situation, as conflict in the Middle East keeps global financial and energy markets on edge.

Other currencies were broadly steady on Tuesday, with the Polish zloty down a tad at 4.3481 and the Czech crown also trading near late Monday's levels.