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NBH Raises 1W Depo Rate For Sixth Consecutive Time

HUNGARY
  • NBH increased its 1W depo rate by 20bps to 3.8% (vs. 3.7% exp.) to continue to curb the inflationary pressures and also limit the HUF depreciation.
  • The central bank hiked its 1W depo rate, also considered as the effective policy rate, for the sixth consecutive time, currently standing 120bps above the ‘core’ policy rate (2.4%).
  • As mentioned previously, we expect the 1W depo rate to reach the 4% level in early 2022 and then the policy rate to gradually converge towards the 1W depo rate through H1 2022 (30bps monthly hikes for core policy rate).
  • Interestingly, HUF is actually weakening since the decision, with EURHUF breaking above its 369 resistance. Next key level to watch on the topside stands at 370.
  • It is not the first time that the forint is weakening following a hike in the 1W depo rate, which increases concerns about a less effective monetary policy (through the depo rate channel).
  • As a reminder, weakening HUF keeps supporting inflation expectations and therefore increases inflation risks in the near term, which was called a ‘public enemy’ by Hungarian policymakers.
  • A sustained HUF weakness could also prolong the NBH tightening cycle, ‘pressuring’ policymakers to increase the terminal rate (towards 4.5%).

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