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NBH 1W Depo Rate Likely To Reach Nearly 5% in Q1

HUNGARY
  • Yesterday, NBH decided to raise its 1W depo rate by 30bps to 4.3% (as expected).
  • This move followed this week's decision to hike the 'core' policy rate by 50bps to 2.9%.
  • Based on Barnabas Virag press conference, the NBH will now proceed with monthly hikes in the 1W depo rate and is likely to hike by another 30bps in February and March, which would levitate the effective policy rate to 4.9% in Q1.
  • However, the NBH could once again act via the 1-week facility if the HUF remains weak under the current environment.
  • The recent market shock due to Russia-related tensions have been weighing on CEE currencies, with HUF underperforming most of EM currencies in the past two weeks.
  • Key level to watch for EURHUF remains at 370; a break above that level would ‘push’ Hungary policymakers to be more aggressive.
  • The ‘core’ policy rate (currently at 2.9%) is expected to gradually converge towards the 1W depo rate through H1 2022.
  • Following Tuesday’s decision, the NBH could proceed with 50bps hikes in the coming meetings, implying that the ‘core’ policy rate will be raised to 1W depo rate in four meetings (May 2022).
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