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Goldman Sachs Expect O/N Deposit Rate Cut in May Following March Inflation Data

HUNGARY
  • The main driver of the decline in CPI was lower food inflation, both due to favourable base effects and also a sequential decline, Goldman Sachs say. Beyond non-core components, there were mixed, but largely encouraging, developments in terms of underlying inflation dynamics.
  • Nevertheless, Goldman Sachs estimate that all four core inflation categories that they track increased by more than 10% m/m annualised in April.
  • Going forward, they expect headline inflation to continue to fall over the course of 2023, although it is likely to remain higher than elsewhere in the region since the favourable base effects in energy components will only be a feature in the second half of the year.
  • Given declining inflation, as well as the relatively positive exchange rate developments, Goldman Sachs continue to think that the NBH will announce the start of lowering the 1-day deposit rate at the next MPC meeting on May 23.
  • They think that the process of converging the 1-day deposit rate to the Base rate will be relatively gradual and prolonged. Forint developments will be main factor that will determine how the NBH proceeds with policy normalisation in the near-term, Goldman Sachs say.
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