The IMF sounded a tad more optimistic on the outlook for Hungary in its quarterly review, but the Hungarian forint was unable to profit from it. The forint had a sharp correction from EUR/HUF 263 to 266.50 during the day as high-yielding currencies were hurt by global risk aversion. The stronger dollar and weaker equity indices played a role behind.
On the local front, the IMF review remained hawkish on the growth outlook as it saw for both 2010 and 2011 growth rates at 2.5%, below the government’s 3.0-3.5% outlook. The report welcomed the fiscal consolidation plan, but lacked details about the measures.
Lastly, March inflation came in higher at 4.5% Y/Y and above the consensus forecast of 4.2% Y/Y. Food and fuel prices rose again sharply during the month, but this time processed food prices also jumped higher on more expensive bread and wheat prices, which pushed up core inflation from 1.9% Y/Y to 2.5% Y/Y. A more elevated core inflation could threaten the central bank’s reluctant stance, while stable prices of services and tradable goods means that demand side price pressures could still be low in the economy. Overall, the outlook became less rosy and the risk is for another high in the future, although it could come only later, like 3-6 months down the road if needed.