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NBH Expected to Maintain 75bp Cut Pace Following Latest Inflation Data

HUNGARY
  • Goldman Sachs say the large decline in inflation was due to the combination of weak momentum and base effects. Within core, their breakdown shows that the decrease was mainly due to declining inflation in (wage-sensitive) personal services – all other core categories were largely unchanged in year-on-year terms.
  • Given today's soft inflation print, Goldman Sachs think a cut of 75bp is all but confirmed at the upcoming MPC later this month. Looking ahead, they expect the disinflation process to continue in the first half of 2024 and their base case remains that if the HUF remains relatively stable, the NBH will keep cutting its base rate by 75bp per meeting through Q1, bringing the policy rate to +8.50% in March, they say.
  • JP Morgan say food and energy were the main culprits of the monthly price decline. On policy, they expect the NBH to maintain its stance, cutting rates by 75bps later this month and maintaining that pace in the subsequent months before shifting to lower gear around 2Q24.
  • ING write that rapid disinflation continued in December, with the fuel component stealing the show. Despite favourable domestic developments, external risks are rising, so ING expect the central bank to maintain the previous 75bp pace of easing.
  • Based on the latest data, ING conclude that inflation could slow further in early 2024, and their latest forecast suggests that it could fall below the upper band of the central bank's 4% inflation target tolerance band as early as January.
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