National Bank of Hungary likely to hike in H2 2019

The National Bank of Hungary kept the base rate on hold and other monetary policy tools unchanged yesterday, as expected. The central bank’s statement was virtually the same as last month. The Monetary Council underlined that the latest inflation figure of 3.4 percent year-on-year was consistent with its projection and it was mainly driven by fuel price.

The Council affirmed its views that the inflation target of 3 percent year-on-year would be attained in a sustainable manner in mid-2019 and thus loose monetary conditions has to be kept. The economic growth is likely to reach 4.4 percent year-on-year in 2018, which might be followed by some deceleration in 2019, but overall the central bank continues to be optimistic on economic outlook, stated KBC Market Research in a report.

Regarding increased market volatility, the statement underlined that the NBH examines the situation from inflationary perspective, but it sees no reason for monetary tightening at the moment. However, the central bank emphasized that the decisions made by the European Central Bank might have significant impact on Hungarian monetary policy as well.

Overall, it appears that the central bank is satisfied with the current EUR/HUF level and is not concerned about secondary effects, so that might stick to its view of keeping the interest rate low and rather letting the currency depreciate to certain degree.

“We don't expect any change for September either, so the NBH may keep base rate at the current level of 0.9% and the size of the MIRS program might be expanded by HUF300bn (just like in previous quarters) from HUF900bn to HUF1200bn. Although we expect the first rate hike only for 2H19, the short-end of the curve may move up by 10-20bp during the autumn”, added KBC Market Research.