National Bank of Hungary’s meet to be overshadowed by the upcoming Brexit vote

The meeting of the National Bank of Hungary on Tuesday will be undoubtedly overshadowed by the upcoming vote on Brexit. The central bank is largely expected to keep policy unchanged. Hungarian central bankers have already indicated that they have terminated their rate cut mini-cycle.

Macroeconomic data for the month of April point to robust growth in the second quarter of 2016. The industrial sector was up by 5.3 percent Y/Y in April in line with the preliminary figure, mainly driven by exports. Growing net real wages and the postponed consumption since the crises boost the retail sales and it may be the main driver of this year’s economic growth.

"Hungarian first quarter2016 GDP growth figure of only 0.9 percent Y/Y growth was rather an outlier and economic growth may accelerate to around 2 percent Y/Y already in 2Q16, while close to 3 percent in the fourth quarter of 2016," said KBC Market Research.

A relatively strong and continuously robust consumption is expected to push inflation gradually higher. So this figure suggests that NBH won’t cut the base interest rate (0.9percent) further in June despite of the surprise drop in inflation back to negative territory.

"Uncertainties around Brexit vote may not support further strengthening of forint in the near-term , so we see bigger chance for some correction followed by side moves, but it will highly depend on global risk taking willingness before the Brexit vote,” adds KBC Market Research.