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JPM Expects 1W Depo Rate To Peak At 7.5% IN Q2 2022

HUNGARY
  • A reduction in risk aversion and some cooling in energy prices allowed the NBH to leave the 1-week deposit rate unchanged last week, after delivering 125bp the previous two weeks.
  • However, the backdrop remains fragile, and while the central bank is no longer under huge pressure to hike immediately, inflationary pressures remain extremely strong in Hungary.
  • In this context, and against a background of deep twin deficits, JPM thinks the NBH needs to continue tightening.
  • JPM expects the 1-week deposit rate will be raised in smaller steps as long as the forint stays well behaved.
  • JPM sees a 35bp move next week to 6.2%.
  • The peak on the 1-week rate should be reached at 7.5% in 2Q22.
  • The base rate should gradually converge toward the depo with a lag, given the large moves in depo JPM expects that at this week’s policy meeting the NBH will raise the base rate by 100bp to 4.4%.
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