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NBH Slowed Down The Pace of Its Tightening Cycle

HUNGARY
  • Yesterday, the NBH decided to raise its policy rate by 15bps (vs. 25bps expected) to 1.65%, in line with our expectations, following three consecutive 30bps hikes since June.
  • According to the central bank's statement, the NBH will continue its monthly interest rate tightening cycle with lower pace (i.e. 15bps hikes):
    • CPI inflation is now expected to average 4.6%/4.7% in 2021 and 3.4%/3.8% in 2022.
    • NBH sees GDP growth at 6.5%/7% this year (vs. 6.2% previously), and at 5%/6% in 2022.
  • The central bank also announced a further reduction in the weekly pace of QE purchases, down to HUF40bn/week (tapering started in August with NBH announcing a reduction of 10bn HUF in weekly purchases to 50bn HUF, and is expected to taper by 10bn HUF each quarter).
  • We have seen that risky assets have strongly benefited from the significant liquidity injections from the NBH with the BUX index recently trading at new record highs.

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