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NBH Surprised Market With a 50bps Hikes Yesterday

HUNGARY
  • The NBH decided to surprise market with a 50bps hike in yesterday's meeting, levitating the 'core' policy rate to 2.9% (consensus was expecting a 30bps hike).
  • The NBH also raised the ceiling on its interest-rate corridor to 4.9% from 4.4%, to leave some room for further tightening via the weekly deposit rate.
  • Majority of sell-side analysts also expect a 30bps hike in the 1W depo rate ('effective' policy rate) on Thursday (Jan 27).
  • However, the renewed weakness in HUF due to global risk-off environment puts NBH policymakers in a difficult position; a weakening forint keeps supporting inflation expectations.
  • NBH mentioned in its statement that the central bank will continue to tighten until inflationary pressures ease.
  • The NBH will also continue to raise its weekly rate further. The central bank added that the 'base' rate will gradually catch up with the 1W deposit rate.
  • Deputy Governor Barnabas Virag said during the press conference that the central banks plans to shift to monthly moves in the 1W depo rate, but will not hesitate to act via the 1-week facility if the HUF remains weak.
  • Further HUF depreciation in the ST could 'push' policymakers to hike more than expected on Thursday.
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