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MNI NBH Point of View - Sticking With 100bps

HUNGARY
  • The NBH are expected to carry on with its gradual process of policy rate normalisation at their meeting next week (Jul 25). Trend-like improvements in domestic data will allow the NBH to continue course along its well-projected easing cycle, though recent bouts of FX weakness may incline the central bank to act with a greater degree of caution.
  • Recent inflation data continues to show favourable developments. The steady pace of disinflation has continued course, with prices continuing to ease from the January peak and recording a 20.1% y/y increase in June from 21.5% in May.
  • Moreover, NBH Deputy Governor Barnabas Virag recently said in an interview that the central bank plans to stick to 100bp/month cuts to the effective rate. He also said that inflation may drop to single-digits by Autumn – slightly earlier than the timeline quoted by other officials who have previously said they expect single-digit figures by “year-end” – though said he sees no need for rate cuts greater than 100bps.
  • While the EUR/HUF exchange rate rallied 5.75% between Jun 27 – Jul 06, the cross has since recovered to levels close to that of the time of the June NBH meeting and is therefore unlikely to alter the NBH's reaction function at this juncture. Regardless, officials will be wary of any additional HUF weakening which could prompt the central bank to alter the current trajectory of monetary easing.
  • Our full preview, including a summary of sell-side views, will be out on Monday.
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