While FX and fixed-income markets have basically shrugged-off recent regional macro data (for instance better-than-expected Polish retail sales), it has probably been deterioration in global sentiment, which sent the forint and zloty on weaker footing.
Moreover, in case of the Hungarian forint there were domestic-specific forces in play too. They include market worries about leaked government plans related to FX loan restructuring and uncertainty ahead of today’s NBH meeting.
And it will be quite interesting one, as it will be the first decision of the Monetary Council after NBH’s governor, Mr. Matolcsy announced the new framework of monetary policy decision making a month ago. The Council is focusing beside of the inflation target on the developments of economy, labour market and on the country’s stability. He highlighted that the Council can change the rate by less than 25bp in one step if the environment calls for more cautious monetary policy.
The latest figures, like inflation or GDP growth published in August suggest that reference rate could be moderated by 25bp again, as inflation slowed down to 1.8% YoY in July from 1.9% YoY in June, while GDP growth was only 0.5%YoY and 0.1% QoQ in 2Q13.
But from stability perspective the situation hasn’t improved in the last month, rather it deteriorated slightly. EURHUF stuck between 295 and 301 and bond yields moved up by 20-30bp. The main concerns are coming from FED’s monetary policy expectation and from Hungarian government’s new program, which targets the abolishment of existing foreign currency denominated loans. The non-performing loan ratio increased above 18% in 2Q13.
Taking in account the above mentioned risks and that NBH’s governor, Mr. Matolcsy said on the press conference a month ago that MC may change the base rate by 10bp if it is the appropriate level, the market consensus is 10bp rate cut from 4% to 3.9% on today’s meeting. The FRAs market price rather 15-20bp rate cut. We share rather the view of market’s pricing and we expect also around 15-20bp rate cut for today.