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According to analysts at TD Securities, there is little doubt that the Hungary’s Monetary Council (MC) will take its first step on the path of policy “normalization” today.

Key Quotes

“This has been flagged for some time by the NBH, with a move in core inflation ex indirect tax effects above the 3% target stated as being a potential trigger for the process to begin – in February this core measure moved up to 3.2% Y/Y.”

“We think there is a consensus that the NBH will reduce the amount of HUF liquidity provided to the market through FX swaps. What is less clear is if they will change interest rates.”

“In the Bloomberg survey, 9/20 respondents expect the O/N Deposit Rate to remain at -0.15%, but 6 expect a 10bps hike and 5 expect a 15 bps hike. We are inclined to take previous guidance from the NBH at face value and to think that the first move in normalization will not involve a hike.”

“A lot will depend on the forecasts in the March Inflation Report, which the MC will have to hand, but we think that recent HUF strength might embolden them to respond fairly dovishly to the move in core inflation above the 3% target.”