Additional cuts from NHB in the pipeline

The National Bank of Hungary (NBH) cut its policy rate by 15bp to 1.50%, as expected. Unexpectedly, the bank signaled that rate cuts will continue. Even though the NBH has cut its policy rate four consecutive months by a cumulative 60bp, not much has changed. The Monetary Council still views inflationary pressures as moderate, predicting inflation will only rise to the 3% target at the end of the forecast period.

There was no mention of the weakening of the HUF loosening monetary conditions. The council reiterated its view that unused capacity exists and therefore "the real economy is likely to have a disinflationary impact... and the output gap is expected to close only gradually." The statement concludes by saying: "In view of the June Inflation Report projections, following a comprehensive assessment of the medium-term outlook for inflation, the Council assesses that the medium-term achievement of the inflation target points to the direction of further, slight easing of the policy rate."

"In view of this statement, we think that one additional, perhaps smaller, rate cut will be made. We change our forecast, predicting a final 10bp cut to 1.40% at the July MPC meeting. Previously we had thought the NBH would stop at 1.5%. We do not rule out additional cuts; the risks are clearly to the downside. This is the first time the NBH has signaled that the end of the cutting cycle is near." said Barclays in a report