KBC Market Research Desk
KBC Bank
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Hungary’s deflation deepens in September. Is another NBH’s rate cut on horizon?
Consumer prices surprisingly fell 0.6% month-on-month in September, which means that deflation deepened in Hungary. As a result, consumer prices were lower 0.4% y/y on average. The key item which caused a drop in headline inflation was the motor fuel price falling more than 5% last month. However, it is worth noting that consumer durables and prices of services fell by 0.1% m/m and 0.6% m/m respectively. These are the items of core inflation, so they could provide more serious inflation signals for the National bank of Hungary and its policy. Still core inflation rose to 1.3% y/y from 1.2% y/y in August. Anyway, a closer scrutiny of MNB comments becomes important again as they could give signals whether the NBH is ready to act again and ease its policy further.
Actually we do not rule out a possibility that a rate-cutting cycle will be resumed in Hungary. We believe that should the NBH cut again, the base rate might be lowered to just above 1% (two 15 bps cuts may be expected). But much will depend on the forint which has remained stable after today’s inflation release. Nevertheless, if the EUR/HUF pair move closer to the 300 level, a rate cut will be seriously on the table given the deeper deflation.
| Currencies | % chng | |
| EUR/CZK | 27.12 | 0.1 |
| EUR/HUF | 312.1 | 0.6 |
| EUR/PLN | 4.23 | -0.1 |
| EUR/USD | 1.12 | -0.3 |
| EUR/CHF | 1.09 | 0.4 |
| FRA 3x6 | % | bps chng |
| CZK | 0.25 | -1 |
| HUF | 1.32 | 1 |
| PLN | 1.72 | 3 |
| EUR | -0.04 | 1 |
| GB | % | bps chng |
| Czech Rep. 10Y | 0.65 | -1 |
| Hungary 10Y | 3.31 | 1 |
| Poland 10Y | 2.67 | 3 |
| Slovakia 10Y | 0.85 | -5 |
| CDS 5Y | % | bps chng |
| Czech Rep. | 50 | 0 |
| Hungary | 167 | 5 |
| Poland | 78 | 0 |
| Slovakia | 49 | -1 |
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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