Hungary nears end of easing cycle - BBH

Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman, Hungary is poised to extend the easing cycle next week.  However, with inflation rising, we think this is likely to be the last move.

Key quotes

"The economy is likely to pick up.  GDP growth is forecast to accelerate modestly to around 3% in both 2017 and 2018 from 2% in 2016.  GDP rose 1.6% y/y in Q4, while monthly data so far in Q1 suggest some acceleration will be seen."

"Price pressures are rising, with CPI accelerating to 2.9% y/y in January.  This is the highest rate since January 2013, but remains within the 2-4% target range.  Despite central bank forecasts for lower inflation ahead, we believe low base effects could see inflation approach the top of the target range this year."

"The central bank last cut rates 15 bp to 0.90% in May 2016.  However, it has since been easing by unconventional measures.  Most recently, the central bank has capped the amount commercial banks can keep at its 3-month deposit facility.  This pushes funds out of the central bank’s deposit facility and into government bonds and the interbank market.  The end result has been lower government borrowing costs and lending rates."  

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