MNI NBH WATCH: 75bp Cut Base Case As Rows Hit Risk Appetite

The National Bank of Hungary is expected to trim the pace of rate cuts from 100 basis points a meeting to 75bp on Tuesday in response to market instability resulting from proposed government changes to the Central Bank Act and the ongoing tussle with Brussels over the release of stalled EU funds. (See MNI POLICY: Hungary Central Bank Likely To Cut By 75bp)

The NBH remains keen to bring rates back to the lowest level consistent with hitting its inflation target sustainably as quickly as possible, with fresh macroeconomic projections also due. At 3.7% February’s annual headline inflation is already within the tolerance band, but the core measure has proved stickier at 5.1%.

A 100bp cut - supported by the latest inflation and current account data - cannot be completely ruled out, with some Monetary Policy Council members seen voting for a repeat of last month's decision. But with financial market stability a key concern, recent currency weakness suggests 75bp is the most likely outcome.

Easing by half a percentage point may also be discussed but is very much the outside bet, especially following today’s announcement that the proposed oversight changes will not be enacted until the autumn, with talks between the NBH, its Supervisory Board and the Finance Ministry ongoing. (See MNI INTERVIEW: NBH Could Slow Rate Cuts To 75-50bp- ExGovernor)

Fresh growth projections will likely show a slight deterioration in the outlook from an already-disappointing position, though mild labour market easing will help moderate wage and inflation pressures.