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NBH To Continue To Hike Rates To Battle Inflation (Virag)

HUNGARY
  • This morning, deputy governor Virag mentioned in an interview that the NBH will continue its tightening cycle to combat inflation, which is expected to decelerate more slowly than what policymakers previously anticipated.
  • We saw on Friday that inflation accelerated to 7.9% YoY in January (vs. 7.4% exp.), up from 7.4% the previous month.
  • Based on Barnabas Virag latest press conference, the NBH will now proceed with monthly hikes in the 1W depo rate and is likely to hike by another 30bps in February and March, which would levitate the effective policy rate to 4.9% in Q1.
  • The ‘core’ policy rate (currently at 2.9%) is then expected to gradually converge towards the 1W depo rate through H1 2022.
  • Following last month’s decision, the NBH could proceed with 50bps hikes in the coming meetings, implying that the ‘core’ policy rate will be raised to 1W depo rate in four meetings (May 2022).
  • This morning, economic data showed that Q4 GDP came in higher than expected at 7.2% YoY (vs. 5.7% exp.).
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