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JPM: NBH Needs to Keep Hawkish Rhetoric, Stay on Tightening Path

HUNGARY
  • As much as growth threats are creeping in the background, Hungary does not have the same space as Poland or the Czech Republic to attempt a smooth, or not so smooth, exit from the tightening cycle.
  • Within CEE, Hungary has the widest twin deficit position, the largest debt stock, the lowest FX reserves, the weakest monetary policy transmission mechanism and the worst relations with the EU.
  • Fundamentally, the source of the problem is the massive widening of the fiscal deficit ahead of election, which triggered a severe widening in the current account deficit.
  • Strengthening Hungary’s situation requires first and foremost a sharp shift in fiscal dynamics and ideally, a re-approachment with the EU.
  • The first appears easier to achieve than the second, but necessity is the mother of invention, so you never know.
  • For now, with these fundamentals, the NBH has to continue delivering a hawkish message and keep the finger on the 1-week depo trigger. JPM expects rates will continue rising to a 12% peak during 3Q22.
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