NBH cuts 15bp to 1.65%

The National Bank of Hungary (NBH) cut its base rate by 15bp to 1.65%, as expected by the unanimous consensus. This is the third consecutive cut since March, when the NBH reinitiated its cutting cycle.


"The NBH will cut its base rate to 1.5% and then hold. This implies one more 15bp cut next month, completing the cutting cycle. There are several reasons to think that the NBH will be ready to stop at 1.5%", expects Capital Economics. 


The HUF has depreciated versus the EUR by 4.2% since mid-April, loosening monetary policy conditions. Headline inflation has reversed direction rising to -0.3% y/y in April from -1.4% y/y in January. Core inflation has increased to 1.2% y/y from a low of 0.7% in January. Growth has remained relatively robust, at 3.4% in Q1 15. The NBH appears confident growth will be maintained.


In the statement this month, the NBH notes unfavorable developments in international investor sentiment. Otherwise, it is little changed from last month, implying the NBH will continue cutting its policy rate next month. If the NBH intends to stop cutting rates in July, the June statement will likely signal a change or possibly the NBH will slow the rate of cuts. If not, further cuts below 1.5% are possible.