KBC Market Research Desk
KBC Bank
Hungary’s 5-year CDS moved to lowest level since August 2008 and the spread narrowed also against its regional pears. We see three main reasons behind the improvement: a) ECB monetary easing program is making Hungarian assets more attractive b) Hungary is less affected by the Swiss National Bank’s decision c) the low oil price and loose monetary policy improves Hungarian GDP outlook.
After the fast appreciation of the currency, the EUR/HUF volatility decreased substantially and it was moved in a quite tight range between 310 and 313 this week. From technical point of view the 50-day moving average around 313, while the 100-day and 200-day moving average at 311 and 310 are the important resistance levels.
Despite of the fast strengthening of the HUF and the low level of headline inflation (-0.9% Y/Y in December), NBH left base rate unchanged on Tuesday in line with our expectation. The statement highlighted that the environment changed towards the looser monetary policy direction, but they still see inflation to return close to the inflation target of 3% Y/Y in 2016.
The NBH will publish new inflationary report in March, which may be the turning point of monetary policy. If this report includes substantial decrease of inflation for 2016, the NBH may start easing cycle. But there was a statement made by the governor of the NBH, namely: they plan to extend the funding for lending program for the big corporates as well. It suggests that the NBH is probably thinking in QE expansion rather and keeping base rate stable than cutting the base rate by 30-50bp within 6 months. We expect that in case EUR/HUF remains mainly above 310 in the coming two months, the NBH may not start a rate cut cycle, and may rather focus on this new funding for lending program.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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