MNI NBH WATCH: Inflation Rise Key Focus As NBH Mulls Easing

MNI (LONDON) - The National Bank of Hungary will weigh whether to cut its base rate by 25 basis points or to stay at 6.75% on Tuesday, after July inflation surprised to the upside and with September potentially offering greater clarity both domestically and internationally.

The NBH cut rates by a quarter point last month after June’s lower-than-expected inflation coupled with an improvement in the country’s risk profile, although some analysts had expected no change. (See MNI EM POLICY: NBH Leans Towards July Cut, Outlook Unchanged)

However, while July’s core inflation rose only 0.1%, headline inflation was up 0.4 percentage point to 4.1% annually, while the forint has weakened against the euro since the last decision was taken. (See MNI POLICY: Inflation Rise, Fed, ECB, Add To NBH Caution)

GDP contracted 0.2% in Q2, suggestive of an annual growth rate well below the 2.0-3.0% seen by the NBH in May, when it lowered rates by half a point.

Deputy Governor Barnabas Virag said in July that expectations of 1-2 more cuts by year-end are realistic. A rate hold this month would still leave room for up to two cuts this year.

The prospect of September’s inflation reports and fresh projections, coupled with greater clarity over Fed and ECB thinking and a strong preference for moving cautiously, would appear to lend support to those Monetary Council members arguing for a  pause in the easing cycle.