KBC Market Research Desk
KBC Bank
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The NBH appears less dovish than expected, but a rate cut remains still on the table for March
The National Bank of Hungary left base rate unchanged at 2.1% in line with the market expectation. However, the main focus was on the statement, but we think it was slightly less dovish than the market expected.
The statement highlighted that the inflation pressure may remain moderate for an extended period and inflation is likely to reach levels around 3% consistent with price stability in the latter half of the forecast period, accompanied by an increase in downside risks. The council expects that the economic growth may be driven mainly by the slowly accelerating domestic consumption and the negative output gap may close gradually.
Regarding the international environment the statement highlighted that the 5- year CDS moderated but the bond yields were not able to move to new low levels. The investors’ sentiment is volatile, so in the view of the council a cautious approach to monetary policy is warranted due to uncertainty about future developments in the global financial environment.
The NBH statement highlighted again the fundamental developments call for a loose monetary policy for an extended period. The Monetary Council will consider the need for possible further easing of monetary conditions in view of the March Inflation Report projection, after a comprehensive assessment of the medium-term outlook for inflation.
Based on the statement we think that the chance for a rate cut is definitely there, but it may highly depend on the decision made by Polish central bank, on the effect of ECB’s bond purchasing program and the development of Hungary’s sovereign bond yields. We see as a most likely scenario 10bp cut for March.
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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