Forint boosted by strong domestic macro figures

Headlines

The positive macro news flow pushed the EUR/HUF pair below the 296 level yesterday - the lowest since the end of 2013, although the pair corrected to around 297 by today morning from the mentioned support level. Meanwhile, the market knows that the NBH was not happy with EUR/HUF levels below 300, so the current strong level of exchange rate increases the chance even of a rate cut of 25bp from 1.95% to 1.70% on 21 April, despite strictly the inflationary and economic developments may not call for such a massive rate cut. So, it looks like now that the market tries to force the NBH into a more aggressive rate cut cycle than it needed from a fundamental perspective.

Regarding the positive news from Hungary, recall that the main (upside) surprise arrived from the inflation side (contrary to the Czech one this morning) as consumer price index decreased only by 0.6% Y/Y in March up from -1% Y/Y in February. Interestingly, the increasing domestic consumption is reflected in the rising tradable goods and market services prices (up by 0.3% M/M and 0.2% M/M respectively). The above mentioned figures confirm our view that CPI may increase further in the coming months and may step back into the positive territory in August, while it may accelerate above 2% Y/Y in December, which is already in the tolerance range of NBH’s inflation target of 3% +/-1%pt.

Beside the March inflation another strong figure came from the retail sale side. Although retail sales growth slowed down from 8.7% YY in January to 6.2% Y/Y in February, the figure reflects still robust increase of households’ consumption. The previous figures were in line with our expectations and fits into the picture that the improving EMU boosts Hungary’s industrial sector and export and the households’ consumption may play important role in this year’s growth. Based on the first two months’ figures, the GDP growth might be around 4% Y/Y in 1Q15.