Hungary's GDP growth depends on performance of exports

In Hungary, the central bank remains committed to holding its base rate at 1.35% for an extended period, until inflation approaches the +3% target. At this time, returning to the target appears to be very far off as inflation at -0.4% y/y dropped back into deflation last month. Thus, the point when rates can increase has been pushed farther and farther away. 

One difference for Hungary compared with other CE countries is that core inflation has remained relatively mild at +1.3% y/y. Therefore, once energy and food prices normalise, headline inflation can increase relatively rapidly. Recent softness of growth adds a new dimension to the analysis. 

"If growth does falter, further cuts become possible. Growth will depend a great deal on the performance of exports, particularly to Europe", states Barclays in a research note.