Hungary: NBH likely to keep its policy rates on hold – TDS

According to analysts at TD Securities, when the Monetary Council (MC) of Hungary meets today it will face something of a dilemma.

Key Quotes

“On the one hand, headline (3.9% y/y in May) and core ex-taxes (3.7%) are near the top of the target range. On the other hand, the global financial environment has turned in a decidedly more dovish direction since the MC executed its “dovish hike” back in March.”

“A lot will depend on the new forecasts in the June Inflation Report. The near-term forecasts for core inflation will have to be moved higher, but we think the previously forecast 3.6% peak in Q4 will not be moved much higher and the MC will, in any event, continue to point to the expected decline next year.”

“So on balance we think the NBH will keep its policy rates on hold, although a hike in the O/N depo rate cannot be ruled out. We think that the MC will probably leave the liquidity target at HUF 300-500bn, but some reduction, say HUF 50bn, is possible.”