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NBH Virag Confirms That Monetary Tightening Campaign 'Far From the End'

HUNGARY
  • NBH Deputy Governor Virag mentioned in a conference in Warsaw that the monetary tightening campaign was 'far from the end' and that the central bank will continue to hike by 15bps in the coming months.
  • Virag also commented that the NBH is seeking to cut HUF liquidity more dynamically.
  • In a recent economic conference, NBH Governor Gyorgy Matolcsy called the soaring inflation a 'public enemy', which has been a global phenomena since the start of the year.
  • It is clear that the NBH will continue its tightening cycle until inflationary pressures start to ease.
  • However, the probability that the NBH will surprise the market with a more aggressive 30bps hike next meeting on October 19 (i.e. like CNB did yesterday) is low.
  • Unless inflation starts to surprise positively in the coming months (remaining well above 5%), we expect the NBH to continue to increase its policy rate by 15bps at each of the next three meetings, which would lift up the policy rate to 2.1% by year end.
  • Another important variable to watch will be the HUF. The forint has been experiencing significant selling pressure and therefore further depreciation on the currency could increase inflation risks in the short term. The key 370 resistance on EURHUF will also be closely watched by NBH policymakers.
  • Next CPI inflation print is coming out on October 8; CPI is expected to increase to 5.4% YoY based on a few sell-side estimates.
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