NBH cut base rate by 15bp from 1.8% to 1.65% in line with market expectation

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Yesterday, the National Bank of Hungary cut base rate by 15bp from 1.8% to 1.65% in line with market expectation. The statement was almost the same as a month before. The Monetary Council highlighted that there were still no inflationary pressure, the unemployment rate exceeded its long-term level determined by structural factors and the capacity utilization was improving only gradually.

So, the main question was how the Council reacts on the faster than expected decrease of deflation (as it was driven not only by fuel price increase, but also by food and services price rise) and the deteriorating international sentiment. Although the statement mentioned these changes, it doesn’t give main importance to it. In our view the last sentence: ‘Cautious easing of the policy rate may continue as long as it supports the achievement of the medium-term inflation target’ confirms that the NBH is determined to moderate the base rate to the Polish level of 1.5%, which is likely to be achieved already next month. We expect that it might be the end of the rate cut cycle as fundamentally we see less and less reasons to continue the cycle, while the stability risk aspect is increasing.

The EUR/HUF pair didn’t react (much) on the NBH decision and remained in the 6- weeks weakening trend. The strong edge of this band is around 307, while the weak edge is at around 312, but there is the 200-day moving average within this range at 308 and also the 310, which is also an important resistance level.