CENTRAL BANK PREVIEW

POV: NBH seen on hold, despite disinflationary pressures; QE likely to be the go to for additional easing

• Due at 1300GMT/0800ET
• NBH is expected to keep rates on hold at 0.6%, despite a moderation in headline CPI closer to the 2.5% target from multiple successive downside surprises. Core, however, remains above 3%, leading us to expect more caution from the NBH as it awaits a further softening in core figures. Base effects and supply/demand shifts in line with the evolution of the pandemic may also contribute to price volatility - which the NBH may want to get ahead of.
• The board will be pleased with a firmer HUF and reduced policy pressures on EU budget optimism and transitory inflation factors - creating scope for a reversal of the September 15bp 1w deposit rate hike. While we do not expect normalisation at this meeting, the NBH may pay lip service to it or seek to adjust in 1Q21 - provided HUF & CPI continue to play ball.
• On QE, the NBH is likely to favour asset purchases over additional easing via the 1w repo, which we expect to stay constant into 2022. The NBH may look to use additional monetary space to increase the size of asset purchases in the coming months from current levels (HUF 40bn/wk). While an increase at this meeting isn't our base case, we cannot fully discount any tweaks.