Hungary’s central bank rate-setting meeting did not bring any surprises. NBH decided to slow down monetary restrictions, which started in June and raised base rate by 25 basis points to 8.0 %. Overall NBH raised rates from June already by 200 basis points.
According to our opinion the decision reflects the current situation in which the inflation outlook is not yet clear. On the one hand latest inflation and wage statistics showed that inflation pressures has already materialized but on the other hand stronger forint and lower oil prices might help to keep inflation under control. Governor Zsigmond Járai confirmed this view when he said that Monday’s decision should not be explained as indicator for the future. Also the fact that MPC discussed three rate options: 50 bps, 25 bps hike and no rate change indicates that inflationary outlook remains unclear.
We believe that further development of monetary policy will highly depend on inflation data as well as on the forint. Since we believe that the political situation will calm down in near future and possible weakening of the forint won’t be sizable, we hold our forecast that NBH will continue in slower pace of a monetary tightening. We foresee base rate at 8.50 % at the year-end.