The National Bank of Hungary is expected to keep its policy on hold this week; however, despite of rising inflationary environment the possibility of additional monetary easing is still there. The latest minutes of the central bank Monetary Council affirmed it. The central bank’s tone stayed a bit dovish although it highlights less the possible additional easing of monetary policy.

The council believes that there still unused capacities in the economy so the output gap might close only in the first half of 2018. This signifies that they don’t anticipate for a solid pressure on inflation coming from domestic factors. They emphasized that the rapid rise of wages is offset by the easing of taxes of social contribution fee and corporate income.

This is because that the council emphasized that in case the inflation stays much below the inflation target, they might use unconventional tools. Meanwhile, the National Bank of Hungary might still want to see fiscal easing before stopping monetary easing.

Finally, there are talks of VAT cut of some food product already this year, which might push down the headline inflation.

“We expect that the dovish stance will remain during the summer, the cap may be moderated and the FX swap tenders may be continued till autumn”, said KBC Market Research.