The National Bank of Hungary (NBH) cut its policy rate 15bp to 1.95%, marginally less than our forecast and the consensus for a 20bp cut. The NBH Press Release and Governor Matolcsky's news conference make it clear that this is just the beginning. More cuts are coming, this will not be a one-and-out cut.
The NBH also introduced a tolerance range into the inflation target of 3% +/-1%. This was always implicitly there, though normally not discussed. It implies that once headline inflation stretches over 2% y/y, the NBH could start hiking rates to ensure positive real interest rates. Alternatively, it also means the NBH could delay hikes for a longer time if, for instance, it thought (predicted) that inflation might temporarily surpass 3% only to decline later.
Barclays Capital notes ....
- Rate decisions will be data dependent. For now we stick with our original forecast of cumulative 60bp cuts with the NBH cutting in the next three months by 15bp each, bringing the policy rate to 1.5%. The HUF firmed considerably following the rate decision, supporting more cuts.
- We highlight risks to our forecast that the NBH calls it quits sooner and that the cumulative rate cuts could be lower.
