Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Executive Summary:
- Given the risks which warranted caution at the last MPC meeting have largely subsided, recent softer-than-expected inflation and GDP data are likely to facilitate a step-up in the NBH’s easing pace to 100bps at this week’s meeting.
- Indeed, our Policy team have reported that 100bps appears to be the baseline, which would take the base rate to 9.00%.
- Nevertheless, the threat to FX stability of a more dovish policy mix poses downside risks. Among sell-side, analysts lack clear conviction over the size of this month’s rate cut, with almost all noting that HUF performance may warrant a cautious approach again.
See our full preview of the decision, with sell-side analyst views, here:
Despite Deputy Governor Virag strongly hinting that the Committee would increase the pace of cuts in January, the National Bank of Hungary decided to err on the side of caution at its last meeting and maintain the previous pace of monetary policy easing. Virag confirmed that fundamental factors (softer-than-expected CPI data, EU fund disbursement since December and an improvement in the current account position) would have facilitated a 100bp cut, but the deterioration in Hungary's risk assessment warranted the smaller move instead. Interestingly, the decision to cut by only 75bps last month was not made unanimously (7-2 in favour). This represented the first dissenting views among the Council since 2016.
The central bank’s sensitivity to FX developments was evident in its smaller-than-expected rate hike last month. As a result, market focus ahead of this week’s meeting has been on pace of HUF depreciation. While EUR/HUF is trading close to its recent highs with the short-term outlook still bullish, the cross has gained just ~0.2% since the last NBH meeting compared to the rally of around 3% in the weeks leading up to the January MPC meeting. As a result, the more stable HUF backdrop is likely to facilitate a step-up in easing pace to 100bp this month, though downside risks are well-noted among sell-side given the threat to FX stability of a more dovish policy mix.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.