Hungary: NBH likely to keep its policy rates on hold - TDS

According to analysts at TD Securities, when the Monetary Council (MC) of Hungary meets today it will face something of a dilemma.

Key Quotes

“On the one hand, headline (3.9% y/y in May) and core ex-taxes (3.7%) are near the top of the target range. On the other hand, the global financial environment has turned in a decidedly more dovish direction since the MC executed its "dovish hike" back in March.”

“A lot will depend on the new forecasts in the June Inflation Report. The near-term forecasts for core inflation will have to be moved higher, but we think the previously forecast 3.6% peak in Q4 will not be moved much higher and the MC will, in any event, continue to point to the expected decline next year.”

“So on balance we think the NBH will keep its policy rates on hold, although a hike in the O/N depo rate cannot be ruled out. We think that the MC will probably leave the liquidity target at HUF 300-500bn, but some reduction, say HUF 50bn, is possible.”