Inflation has dropped significantly, a cycle of interest rate cuts may begin, while gold soars

Interest rate decision: the market is already treating the cut as a fait accompli

The latest inflation data is approaching a multi-year low: the January value was 2.1% – within which food prices increased by only 1.3% – and February inflation may even slip below 2%. This significant reduction opens up room for the central bank to cut interest rates.

Experts unanimously state that the interest rate cut is already “priced in”, and the market would even be more sensitive if it did not happen. “The forint has remained stable even with falling interest rate expectations – this is a clear indication that the market is already treating the cut as a fait accompli,” said Zoltán Árokszállási, director of the MBH Analysis Center.

According to experts, the falling base rate could result in cheaper lending, more vibrant investments and a more stable financing environment.

Gold: extreme demand, limited supply, resurgent central bank purchases

In the second half of the program, experts analyze the spectacular two-year rise in the price of the gold market. The price of gold is currently being driven up by several factors:

• the world’s central banks have been buying it in significant quantities again since 2018,
• although jewelry demand has declined, investment demand has doubled,
• the supply is extremely inelastic, expanding by 1–1.2% per year at most,
• geopolitical uncertainties and falling real interest rates are further strengthening the trend.

“Since 2019, gold has once again become the second most important reserve asset for the world’s central banks – this is a megatrend,” emphasized Vince Péter, head of the Advisory Desk at MBH Investment Bank.  According to the expert, it is an interesting phenomenon that gold and the forint its price rises simultaneously, because the precious metal is a safe haven asset, while the forint is treated more as a speculative asset by global investors.

Vince Péter highlighted: “In a portfolio, gold is an additional element: it is not a main investment, but it can have an important stabilizing role.”