National Bank of Hungary likely to stand pat in August

The Hungarian central bank is set to meet next week for its rate setting meeting. According to a KBC Market Research report, the National Bank of Hungary is expected to keep the stance of the statement unchanged in spite of the latest figures supporting a slightly more hawkish stance.

In July, the consumer price inflation accelerated in to 3.4 percent year-on0year and although it is above the 3 percent year-on-year inflation target the NBH might underline that the acceleration was entirely consistent with its expectation and the core inflation stayed about 2.5 percent year-on-year, so it does not require monetary tightening.

The Hungarian economic growth accelerated in the second quarter of this year 4.6 percent year-on-year from 4.4 percent recorded in the prior quarter. Even if the seasonally and working day adjusted figure show some modest deceleration of the growth, the economy was able to keep more or less its speed in the past three quarters.

This appears to be well above the nation’s current potential level; however, the NBH might rather highlight that the output gap has probably been closed in the past quarter, but they might not speak about a positive output gap, noted KBC Market Research. The Hungarian central bank might also maintain its view about the elevated wage dynamic.

“All in all, we expect that nor the benchmark rate neither the non-conventional tools may be changed in the upcoming meeting and the statement will repeat that monetary tightening may come in the next 5 to 8 quarters as the NBH may reach its inflation target on a sustainable manner in middle of next year”, added KBC Market Research.