KBC: Hungarian central bank surprises with keeping rates unchanged. Forint weakens only temporarily after the announcement
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| 10:56 |
The Hungarian central bank surprised markets by keeping its base rate unchanged at 7.00% yesterday, while consensus expected a 50bps rate hike.?
The statement concludes that risk assessment of Hungarian assets depends very much on the talks with the IMF/EU team, while the fundamental outlook for inflation is rather relaxed due to the slack in the economy from weak household spending and fiscal tightening measures.? Indirect tax increases and the weak currency pose risk for inflation, hence the Council also emphasised that it will monitor the tax-adjusted core inflation closely. We believe that markets will accommodate to the relatively loose monetary policy because government bond yields are still quite high at above 9.00% and the market continues to expect about 50-75bps rate hike for the next 3-6 months.
In our view, the central bank opened the door for a rally in yields if IMF talks advance in February and they may decide on another hike if the talks slow down.? This looks to be a risky strategy first, but they were on the cautious side in December with a bigger hike, so we think their general approach to follow the assessment of Hungarian assets is generally right, albeit we would prefer if it was communicated more in advance.
KBC
es
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