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NBH Leaves 1W Depo Rate Unchanged Despite Significant HUF Weakness

HUNGARY
  • As expected, the NBH decided to leave its benchmark rate steady at 6.45% despite the significant HUF weakness.
  • The forint experienced significant selling pressure following PM announcement yesterday that Hungary will use emergency measures for a Ukraine crisis windfall tax on large companies, which will affect banks, telcos, energy, retailers and airlines over a two-year period.
  • This news came in one day after Orban declared a state of emergency.
  • EURHUF broke above the 390 level yesterday and is gradually approaching its key resistance at 400, which corresponds to the pair’s all-time high.
  • Selling pressure has surged on domestic equities, with BUX index falling below early March lows; the index is down over 30% since its January highs.
  • Next NBH meeting is on May 31; the NBH is likely to slow down the pace of its tightening cycle on the ‘core’ policy rate (i.e. 50bps hike).
  • However, risks are skewed to the ‘hawkish’ side as HUF weakness keeps supporting inflation expectations (‘public enemy’).

Source: Bloomberg

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