NBH ends rate easing cycle as expected

Hungary's CenBank cut its benchmark rate yesterday by slightly larger than expected 15bp to 1.35%. With this cut, the MPC formally con-cluded the easing cycle which had been in place for the preceding five months. 

The state-ment highlighted uncertain global conditions and, hence, the need to turn cautious about further easing; although at the same time, the statement emphasised that loose monetary conditions will likely be maintained for an extended period. Interestingly, EUR-HUF fell sharply following the larger-than-expected rate cut, taking out key technical levels - Commerzbank assumes that this puzzling market move implies that many market participants simply did not believe that NBH would pull the trigger and officially close the easing cycle (the dovish leanings of the present MPC is widely known), hence, the outcome was 'hawkish' for these market participants. 

"Going forward, we see core inflation accelerating in Hungary: the low headline inflation rate in Hungary is misleading because of many administered price cuts; going by the CB's own near 3% forecast for 2016 core inflation, the forward-looking real interest rate is now significantly negative in Hungary. Hence, despite a sizeable and widening current-account surplus, we forecast EUR-HUF to gradually rise to 320.00 during 2016, while EUR-PLN, for example, is forecast to remain steady", according to Commerzbank.