MNI NBH Preview - September 2023: Convergence Completion

Executive summary:

• The NBH are almost certain to deliver another 100bp cut to the one-day deposit rate, in-line with previously offered guidance that the rate will be converged to the 13% base rate by the end of this month.
• Beyond this, there is no firm consensus among sell-side regarding the path of the base rate for the remainder of the year, though benign inflation developments could open the door to faster easing.
• On the other hand, recent HUF weakness and sensitivity of the currency to global factors may incline the NBH to act with caution instead amid little guidance offered on the direction of monetary policy simplification moving forward.

See our full preview of the decision, with sell-side analyst views, here:

MNINBHPrevSep23.pdf

Since the August decision, inflation data has continued to show favourable developments. The steady pace of disinflation continued, with prices continuing to ease from the January peak, recording a 16.4% y/y increase in August from 17.6% in July, while core inflation fell to 15.2% y/y. Central bank Governor Gyorgy Matolcsy said he expects inflation to drop to single-digits in November, and to 7% by December, indicating that real rates will remain contractionary despite the projected continuation of the easing cycle.

However, the EUR/HUF exchange rate has strengthened since the August decision, with the cross trading within close proximity to the 390.00 handle and the early September highs. Given the possibility of further rate hikes by the ECB and the Fed, as well as renewed property sector concerns in China, global factors will continue to pose downside risks to the forint, which may incline the central bank to cut in smaller intervals at subsequent meetings.