MNI NBH Preview - August 2024: A Brief Pause

Executive Summary:

• The National Bank of Hungary is expected to act in-line with its relatively hawkish guidance and keep rates unchanged at 6.75% following a 25bp cut last month.
• A stronger-than-expected CPI reading for July warrants the pause, though risk of another 25bp easing move is noted by some analysts given the relatively stable risk backdrop.
• Among sell-side, the vast majority of analysts are expecting rates to be held at this juncture.

See the full preview, with a summary of sell-side analyst views, here:

MNINBHPrevAug24.pdf

Since the previous meeting, Hungary’s consumer prices rose +4.1% Y/Y (Est: +4.0%) in July versus +3.7 in June, with prices rising +0.7% on a month-on-month basis (Est: +0.5%). The stronger-than-expected print puts the headline figure back above the upper bound of the NBH’s target range and was an upside surprise to the central bank's latest forecast. Although the rise was mainly due to base effects in food inflation combined with a rise in core inflation, from +4.1% Y/Y to +4.7% Y/Y, the data will likely be enough to prompt a pause in easing at this stage given that the central bank has repeatedly stated that it will act in a data-dependent manner.

In his post-decision press conference last month, Deputy Governor Virag said expectations of 1-2 more rate cuts by year-end are realistic. A pause this month, followed by a resumption of easing in September, would be consistent with this guidance, leaving room for one more rate cut by year-end. Given updated inflation reports are provided in September and December, these meetings provide the most opportune time to act.