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Economic Outlook Worsens As 3Y Reaches 7%

  • ST rates have been surging sharply since the start of the year as soaring inflation risks have pushed Hungarian policymakers to tighten aggressively.
    • NBH is meeting today is very likely to maintain the pace of its tightening cycle and raise the ‘core’ policy rate by 100bps to 5.4%.
  • Hungary 3Y yield has surged by nearly 300bps since early January and reached 7% this month, its highest level since August 2012.
  • In addition to the renewed geopolitical tensions that have been weighing on HUF and other CEE currencies and is expected to weigh on the economic activity, the dramatic tightening in financial conditions has also been pricing in a significant deceleration in the business activity.
  • The chart below shows that the 2Y change in Hungary 3Y yield has strongly led the industrial production (‘proxy’ for economic growth) in the past 15 months.

Source: Bloomberg/MNI

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