Today NBH will hold its regular rate-setting meeting, which will be the last for current NBH governor Zsigmond Járai. In addition the new quarterly Inflation Report will be released.
Our view: We believe that the voting will be tight, nevertheless we stick to our earlier forecast that rates will stay on hold. Although January’s inflation data showed that inflation has surged quite sharply and December’s wage increase might have indicated that fears from secondary effects of administrative price hike on inflation are justifiable, we believe that the key factor that will affect the rate decision will be the new Inflation report. Although there are no doubts that inflation will surge further in February as well as in March, we believe that medium as well as long-term inflation outlook of NBH will be more favourable than the previous one.
According to our view there are two key elements that should contribute to more favourable inflation outlook: stronger forint (the latest inflation report was based on fixed exchange rate of EUR/HUF 267.3) and also falling oil prices. In addition the mandate of deputy governor György Szapáry, who belonged to hawks in MPC, has expired last week and his successor will be named only at the beginning of March by the new governor Andras Simor. Thus on today’s meeting the dovish stance might get stronger.