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JPMorgan Say NBH Must Tighten Further Following CPI Print

HUNGARY
  • There are no silver-linings at 20%, NBH must tighten more. Looking at the September inflation dynamics in abstract, one can say that core inflation was in line with expectations and that there are some signs of a slowdown in momentum, though still at absurdly high levels. Yet, with inflation at over 20%, all the silver linings lose their shine, especially as these are just incomplete and insufficient signs of moderation – as we just saw in other countries in the region (Poland), 2-3 months of momentum slowdown are of little assurance.
  • JPM believe the NBH’s message of rates peaking at 13% goes in the wrong direction, as it signals a diminishing commitment to fighting inflation, at a time when the job is far from done.
  • The NBH will now continue to tighten with alternative rates, in particular the new 2-month deposit facility (also potentially other maturities will coexist) and the option stays open to play with the 1-week depo rate. This may seem like a strange setup, but for Hungary’s standards, this is actually the normal: very rarely has the NBH run a framework over the past several years where the base rate meant much.
  • What matters now is that it continues to raise effective rates further. JPM maintain their call for a peak 14.5% effective rate, which could be insufficient if core CPI momentum has not peaked as JPM believe, but they think the upcoming economic slowdown will prevent a more aggressive approach.
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