The NBH are likely to deliver another 75bp cut to the base rate, taking it to 11.5%.
Since the previous rate decision, headline inflation has continued to decline, falling by over 2ppt from +12.2% y/y in October to +9.9% in November, back into single digits for the first time since April 2022 and achieving the government’s year-end target ahead of schedule. The main driver was a significant fall in food and non-alcoholic beverage inflation, from +13.4% y/y to +8.0%y/y, due both to base effects and weaker momentum, however, there were broad-based falls in most categories of the CPI basket. Core inflation fell to +10.9% y/y from +13.1% the month prior.
Following the data, Deputy Governor Virag reiterated previous commentary that easing will be made in a “cautious” manner, though he offered specific guidance that the 75bp rate cut pace will likely be maintained at the November MPC meeting. Such a decision had already largely been anticipated by markets, with implied vols capturing the turn of the year and early '24 trading at a discount to realised as NBH comms point to a more predictable approach for NBH policy – 3m implied EURHUF vols briefly traded to their lowest since Feb ’22 last week.
