NBH delivered another 25bp rate cut yesterday, the fourth in a row, in line with broad market consensus. The rate cut is to support economic growth in the recession-hit economy, despite the still high inflation level (at 6.0%y/y in October). The data released after the last NBH sitting showed Hungary’s economy contracted for the third consecutive quarter in 3Q12 (by 1.5%y/y).
The country's PMI index again fell below the 50 neutrality threshold in October, to 49.9 from 52.4 in September, signaling further weakness ahead. Taking into account the unfavorable economic outlook, more easing by Hungary's central bank is likely in the upcoming months provided the financial markets situations remains favorable. As for now, the forint remains relatively strong (around 280/EUR) and bond yields are stable. This is despite the fact that the odds of agreement with IMF have fallen as the government adjustment packages came against what was advised by the fund. We now expect NBH to cut interest rates by another 75bp in this easing cycle, to 5.25% at end-2013.
Hungary, Policy rate (Nov): 6.00%
Previous (Oct): 6.25%
Consensus: 6.00%, KBCS forecast: 6.00%