MNI POLICY: NBH March Projections Key To Policy Outlook
MNI (LONDON) - The National Bank of Hungary will wait for March’s update to its CPI outlook before considering whether to reset the base rate from 6.5%, particularly after a surprise jump in inflation weighed against any arguments for a cut, MNI understands. (See MNI EM NBH WATCH: Base Rate To Hold At 6.5% Despite Price Uptick)
While monetary conditions are tight, and the real rate positive, policymakers will want a more detailed fix on the potential pace of disinflation after inflation has passed its current peak, with the next two or three months’ data crucial. In December, the NBH indicated that it could hold rates unchanged for an extended period, but March’s meeting will see a new era for the Bank, with Mihaly Varga replacing Gyorgy Matolcsy as governor.
December’s headline inflation of 4.6% jumped from 3.7% in November and was higher than expected as some upside risks foreseen last year materialised. A further uptick in the CPI rate is expected in January, as global food prices increase, and as, despite disinflationary pressures, November’s sharp forint depreciation is reflected in the repricing of traded goods.
The NBH considers that the monetary policy transmission mechanism is faster via the exchange rate channel.
The NBH also pays close attention to household inflation expectations, which are volatile but have become less anchored.
Services inflation however will be key, while a second concern would be the danger that inflation could deviate from the projection over an extended period.