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- Hungary's central bank is under pressure to avert turmoil in the swaps market from spilling over and undermining the most aggressive monetary-tightening cycle in the European Union (BBG).
- From BBG team: The most dramatic action has been in the FX swaps market. The one-month forint implied yield dropped to -0.52% on Thursday, the lowest since June 2020. That's compared with 1.22% just two weeks ago.
- Yesterday, NBH Deputy Governor Virag said that the central bank is still targeting price stability and is determined to curb prices as it poses a threat to the economic recovery.
- This week, we saw that CPI inflation accelerated to 4.9% in August (vs. 4.7% exp.) and up from 4.6% the previous, remaining significantly above the NBH 4-percent upper tolerance band.
- The NBH has embarked into a tightening cycle since June and delivered its third consecutive 30bps hike last months, which increased the base rate to 1.50%.
- Hawkish NBH has been supporting Hungary equities in the past two months with the BUX index trading at a new record high above the 53,000 level.
- Even though odds of another 30bps hike at the next meeting on September 21 have increased following the positive surprise in inflation, we think that the NBH will continue its tightening cycle with smaller hikes (15bps) in the coming meetings as the uncertainty over the economic recovery remains elevated.